The Contract Act 1872

Sem II
Index

 Definitions
 Classifications of Contracts
 Essential Elements of a Valid Contract
 Discharge of a Contract
 Contingent contracts
Definitions
 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 or OFFER

 A proposal, when accepted, becomes a PROMISE of the

offerer

 When a person to whom the proposal is made, signifies his

assent thereto, the PROPOSAL is said to be ACCEPTED

 The person making the proposal is called the "PROMISOR",

and the person accepting the proposal is called "PROMISEE”
Definitions
 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;

 Every promise and every set of promises, forming the

consideration for each other, is an AGREEMENT;

 Promises which form the consideration or part of the

consideration for each other are called RECIPROCAL
PROMISES
Definitions
PAST
Consideration
 When, at the PRESENT
desire of the promisor, the promisee
FUTUREor
Consideration Consideration
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;

 Every promise and every set of promises, forming

the consideration for each other, is an
AGREEMENT;
Definitions

 An agreement enforceable by law is a

CONTRACT

 Therefore CONTRACT = Agreement +

Enforceability by Law.

 AGREEMENT = Offer + Acceptance +

Enforceability by Law
 Classifications of Contracts - An agreement becomes a
contract when all the essential elements of a contract are present. In such case such agreement
becomes a contract. If anyE.g.,
of theagreement
essential elements are missing
with minor then
or an such contactwithout
agreement is voidable,
void, illegal or unenforceable consideration is void-ab-initio
 BASED ON THE VALIDITY:
.
 VOIDABLE CONTRACT: An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others, is a voidable contract”.
Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into a
 VOID AGREEMENT: An agreementwith
contract not enforceable
an alien by to law is saidprohibited
import to be void.” goods.
A void agreement
Mr. A
does not create any legal right or obligation. Such agreement is void-ab-initio from the beginning itself.
knows of the purposes of agreement. The transaction

between Mr. B and Mr. A is collateral to the main
VOID CONTRACT: A contract which ceases to be enforceable by law becomes void when it ceases to
agreement.
be enforceable.” In this case It is illegal
when the contract was since
enteredthe
into,main agreement
may be is illegal.
valid and binding on the
parties as per law, but subsequently it has become void. E.g., in the case of import contract, the
agreement is enforceable, but if subsequently war brakes out then the agreement becomes void
contract.

 ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule of
Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL
VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between the
immediate parties but has its further effect that even the collateral transactions to it become tinted with
illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal
contract.

 UNENFORCEABLE CONTRACT: An unenforceable contract is one which cannot be enforced in a

court of law because of some technical defect such as absence of consideration or absence of contract in
writing. The parties to the contract may fulfill their obligations but in the event of breach of contract the
other party cannot enforce it.
Classifications of Contracts
Case Law: a fire broke out in S’s firm. He called upon the
upton fire brigade to put out the fire which the latter did. Mr. S
firm did not come under the free service zone although he
 believes
BASED ON to be so. Held, he was liable to pay for the service
FORMATION:
rendered, since the services was rendered on the implied
promise to pay (Upton Rural District Council vs. Powell)
 Express contracts: If the terms of the contract are expressly agreed upon
(whether by words Example
spoken or written)
–Trader at the
leaves thegoods
time at
ofMr.
formation ofby
A ‘s house
contract. mistake. Mr. A treats the goods as his own. Mr. A is
bound to pay for the goods.
 Implied contracts: in this case the contract comes into existence by the
acts or conducts of the parties -E.g., Getting into a Public bus.

 Quasi contract: strictly speaking quasi contracts are not contracts. A

contract is one, which is entering into with the consent of the parties to
the contract. A quasi contract is one, which is created by law. It is based
on the principle that “a person shall not be allowed to enrich himself
unjustly at the expense of another.”
Classifications of Contracts
Example –Mr. A entered into a contract with the porter
for lifting his 5 bags. Porter agreed and lifts all the 5
bags for Rs. 100. So here the porter has lifted the bags
and Mr. A has paid him.
 BASED ON PERFORMANCE:
Example –Mr. A entered into a contract with the porter
for lifting his 5 bags. Porter agreed to lift all the 5 bags
 Executed Contract:
for A
Rs.contract
100. So in which
here bothhas
the porter thenotparties to bags
lifted the the
contract have completely
and Mr. Aperformed
has not paidtheir
him. share of obligation and
nothing remains to be done by either of the parties

 Executory Contract: A contract in which both the parties or any one

party to the contract has to still perform their share of obligation

 Unilateral Contract – where any one party to the contract has to still
perform their share of obligation

 Bilateral Contract - where any both the parties to the contract has to still
perform their share of obligation
Essential Elements of a Valid
Contract
All agreements are contracts if they are made with:
 Offer and Acceptance
 Intention to create a legal relationship
 Lawful Consideration
 Capacity of the Parties
 Free Consent
 Lawful Object
 Certainty and Possibility of Performance
 Legal formalities
If any of the above is missing, the contract becomes void.
EssentialE.g.,
Elements of a Valid Contract -
Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.
Offer and Acceptance
 There must be minimum two parties to an
agreement.
 I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
 the other accepting it (also called as
offeree/proposee/promisee/acceptor)

 The terms of offer must be definite

 Acceptance must be unconditional.

Essential Elements of a Valid Contract –
Offer – Meaning:
A person is said to have made a
proposal/offer,
 when he 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
Offer - Kinds of offer:
E.g., When A says to B, “Will you purchase my house
at Chennai for Rs. 3 lakhs. .
E.g., When a transport company runs a bus on a particular
route, there is an implied offer by the transport co. to carry
passengers for a certain fare. The acceptance of the offer
 Expressedisoffer - When
complete offer
as soon asisa made by express
passenger spoken
boards the bus. or written
words

 Implied offerE.g.,
- An offer
If Mr. maytoalso
A asks behis
B, for implied
blue carfrom the conduct of
for Rs.
the parties or the2,00,000/-,
circumstances of the accept
Mr. C cannot case.  the offer.

 Specific offer - When an offer is made to a definite person, it is said

to be Specific Offer. It can be accepted by the person to whom it is
made.

 General offer – When an offer is made to the world at large

Case Law: A hotel put a notice in a bed room, exempting the proprietor from liability
Legal rules to offer
for lossCase
knowledge
of Law:
missing
Lalmann
client’s E.g.,
of thenephew.
goods.
purchase
Mr.v/s
client only
A Gauri
has 3the
Held,
Subsequently
my
Dutt-
cars.
car for
when theRs.
E.g.
He asked
notice G sent
was
G announced
2 lakhs.
contract
Mr.
nothiseffective
to The
take
Bservant
“are you
aoffer
reward
L
asin
is not
a room for
ready
had
itsearch
to oftohis
came
definite.
information
already been
the
 The offer
concerning must be given with an intention to create legal relationship -
the boy. L brought back the missing boy, without the knowledge A social invitation even if
entered into.
it is accepted, does not create a legal relationship because it is not intended so.
of reward. It was held that there was no contract between L & G and the
P deposited
 The termsa of bag
the in themust
offer cloakreward
room of
be definite:
cannot
theaterms
be
railway claimed.
station.
of the offer mustOnbethe faceand
definite of certain
the ticket,
and
issued mustto not
him, was written
be ambiguous “see
or vague.   back”. One of the printed conditions limited the
liability of the company for loss of a package to Rs.10/- The bag was lost and P
claimed
 Offer Rs.must be communicated:
24.50/- as its value. an offer
Held, to Pbe was
complete
boundmustbybe the
communicated
conditions to the
on person
the backto
whom the offer is made. Mere by acting to the terms of the offer without knowledge, the offer
of thecannot
ticketbeeven
treatedif as
heaccepted.
had not Anread.
acceptance of offer in ignorance of offer is no acceptance and does
not confer any right on the acceptor.
 
Eg: A offers his black kinetic to B for Rs. 20,000/- and tells him that if I
 Offer may be conditional: When the offer is subject to conditions, they must be clearly
don’t here anything.
communicated From
to the offeree. If theyou within
person 15thedays,
accepts I will assume
offer without thatofyou
the knowledge the conditions
have
the offeror can’t claimaccepted my of
the fulfillment offer. This offer
conditions. But theisconditions
not validare clearly expressed, then
offeree can plead ignorance.
 
 Offer must not contain a term that non-compliance of which may be assumed to amount to
acceptance: the person making the offer cannot say that if acceptance is not communicated by a
certain time, the offer would be considered as accepted

 statement of price is not an offer: a mere declaration of intention or a a mere statement of price is
not construed as an offer to sell.
Offer and other forms
 There is a clear difference between offer, invitation to offer or an announcement:
An announcement: a declaration by a person that he intends to do something gives no
right of action to another. Such a declaration only means that an offer will be made or
invited in the future and not that an offer is made now. E.g., Auction sale, will, etc.
 
 An invitation to make offer: display of goods by the shopkeeper with a price marked
on it does not make
Eg: Aaninvites
offer, but merely
tenders forgives an invitation
the supply of 100 tobricks.
the public to make
X, Y, and Zan
offer to buy the Eg; a at
goods railway Co. invited
the price marked tender
on it. for
E.g.,certain Iron articles
quotations, which
catalogues,
submit the Tender. A accepts the tender given by X. There is
it mightissued
advertisements, prospectus require over
by the a year.etc.W’s tender was accepted. He
company,
binding contract between A and X
supplied goods for some time. He refused to supply at a later
 time.
Tender is an offer to But the contract
the invitation is binding
of an offer. on W
(public ad).

 Tender can be definite offer to supply specified goods and services.

 Tender can be standing offer.

Essential Elements of a Valid Contract –
Acceptance –Meaning:
 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

 Acceptance may be implied or expressed. In

express acceptance, while that given by conduct is
termed as implied acceptance.
 Eg; A offers his car to B for Rs. 50,000/- B accepted the offer
and paid Rs. 49,000/- cash down and promised to pay balance
Legal rules to acceptance
of Rs. 1,000/- by tomorrow. This is no acceptance
Case Law: on 08th June, Mr. M offered to take shares in R Co. He received a
letter of acceptance from R an
Eg: a makes Co.offer
on November
to B and says 23. He refuses
“ if you accept to take the shares.
the offer
 Unconditional
Held, Mr. M, -was An acceptance
entitled toinrefuse,
order to be
asthe hisbinding
offerby mustlapsed
has be absolute/complete
as the and
reasonable
Case Law: Lalmann
unconditional. reply by wire.
v/s Gauri
The acceptance B
must be sends
Dutt all
-G reply
sentofhis post. It is not a valid
servant L in search of his
period during which it could be to terms
accepted offer.
acceptance.a reward(Ramsgate
had elapsed Victoria
 missing nephew.
Communicated Subsequently G announced
to the offeror for information
Hotel Co., vs. Monteflore)
 concerning
Must be given in the prescribedback
the boy. L brought modethe - ifmissing boy, without
the acceptance the knowledge
is not according to mode
of reward.
prescribed, or Itsome
wasusual
heldorthat there was
reasonable, thereno contract
is no contract.between L & G and the
 Given in a reasonable timereward - if anycannot
time limitbeisclaimed.
specified, the acceptance must be given
within that time. If no time limit is specified by the offeror, then it must be given within a
reasonable time and it depends on the facts of the case
 Company
Must be given by the parties, to whomallotted the shares
the offer is made to a person
- When who
an offer is had
madenotto a
particular person, it can beapplied
acceptedfor them.
by him Subsequently,
alone. If it is acceptedwhen he applied
by another person, for
there
is no valid acceptance shares he was unaware about previous allotment. Thus,
 Must be given before the offer lapses or previous
withdrawnallotment is void.
 It cannot precede an offer
 Once the offer is rejected it cannot be accepted by the offeree, unless the offeror renews

the offer
 It cannot be implied for the silence - the acceptance of an offer cannot be implied from
the silence of the offeree, unless the offeree has, by his previous conduct inducted that his
silence means the acceptance.
Lapse or termination of offer
 I. By communicating the notice of revocation - Offeror can give notice of
revocation to offeree but before the acceptance is complete as against him.
 e.g., At an auction sale, A makes the highest bid of B’s goods. He withdraws the bid
before the fall of the hammer. The offer has been revoked before its acceptance.

 II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed
time is over, otherwise after the reasonable time.
 e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the wool.
Held, the offer had lapsed.

 III. By non-fulfillment by the offeree of a condition precedent to acceptance

 E.g., S a seller agrees to sell certain goods subject to the condition that B, the buyer,
pays the agreed price before a certain date. S had sold the wool. If before the date buyer
did not pay then the offer is revoked.

 IV. By death or insanity of the offeror provided the offeree comes to know it
before acceptance. But If he accepts an offer in ignorance of the death or insanity
of the offeror, the acceptance is valid.
Lapse or termination of offer
 V. By counter offer - When offer is accepted with some modifications in the terms of the offer,
then it amounts to counter offer. By putting counter offer the original offer comes to an end.
 E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you ready
to sell it to Rs. 8 lakhs. B’s question to A is a counter offer.
 E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on the
terms and conditions as would have applied to the full contract. Held, there was no
contract as there was a counter offer to the offer.

 VI. If an offer is not accepted according to the prescribed or usual mode provided the offeror
gives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the
acceptance.

 VII. If the law is changed. An offer comes to an end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.

 VIII. Destruction of subject matter: - ‘A’ offers ‘B’ his cow for Rs. 4500/- In the mean time, the
cow dies due to snake bite. The offer is lapsed.

 Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequently
accept it.
 Rejection of the offer may be express or implied.
 Express Rejection: The offeree may reject the offer expressly, i.e., by words written or
spoken. This is effective only when notice of rejection reaches the offeror.
 Implied Rejection: Rejection of the offer is implied by law- where the offeree makes a
counter-offer or where the offeree gives a conditional acceptance
Communication of Offer.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The
communication of the offer is complete when B receives the letter, i.e.,
on 12th July.

 The communication of a proposal is complete- when it comes to the

knowledge of the person to whom it is made.
E.g., in the above case, when B accepts A’s Proposal, by a letter sent by post on
13th instant. The letter reaches on 15th instant. The communication of acceptance
is complete, as against A, when the letter is posted, i.e., on 13th, as against B,
when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)

 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
Revocation of Offer

Revocation means
 taking back or

 Withdrawal or

 cancellation.
 E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
Communication of Revocation of Offer
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.
 The communication of a revocation is complete -as
against the person who makes it (i.e. for the
revoking party), 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;
(i.e. when the letter of revocation is posted.)

 (For the opposite party) as against the person to

whom it is made, when it comes to his knowledge
(when the letter reaches him)
Time for Revocation of Proposals and
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the
Acceptance
letter is posted on the 1st of the month. Mr. B accepts the proposal by a
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.
 A proposal may be revoked at any time
before the communication of its acceptance is
complete as against the proposer, but not
Mr. A may revoke his offer at any time before Mr. B posts his letter of
afterwards.
acceptance, i.e., 4th but not afterwards
Mr. B may revoke his acceptance at any time before the letter of acceptance
reaches Mr. A, i.e., 6th, 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.
Loss of letter of acceptance in postal
transit:
 Acceptance is complete as against the offeror as
soon as the letter of acceptance is posted.

 The contract is complete even if the letter of

acceptance goes astray or is lost through an accident
in the post.

 But in order to bind the offeror, it is important that

the letter of acceptance is correctly addressed,
adequately stamped and posted,

 Otherwise the acceptance is not complete

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 the

death or insanity comes to the knowledge of the acceptor before
acceptance.
Essential Elements of a Valid Contract –
Consideration – Meaning:
 When a party to an agreement promises to
do something,

 he must get something in return.

E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the
consideration is Rs.15000/- and for B’s promise the consideration is the car.

 This something in return is defined as

consideration.

 .
Legal Rules to Consideration

 Move at the desire or request of promisor - An act constituting consideration must have been done at the desire or
request of the promisor, if it is done at the desire of the third party or without the desire of the promisor it will not be a
A borrows
E.g.,good Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
consideration.

is
 now about
It may to file
move from the a suit and
Promisee or anyAother
agreesPersonnow
– Thistomeans
paythat
a higher
as long asrate
there of
is ainterest. B for
consideration agrees forit
a promise
not is immaterial
filing
contract
who
a suit. Thishas furnished it. But aisstranger
forbearance a validto consideration.
the consideration will be able to sue only if he is a party to the

 It may consist of an Act or Abstinence (means not doing something)

 Consideration can be past, present or future -

 It need not be adequate - Consideration as said “something in return” and something this something in return need not
be equal in value to “Something given”. The law requires that the contract must be supported by consideration and not
the adequate consideration.

 Must be real & not illusionary - There is no real consideration in the following cases:
 Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s promise is
physically impossible to perform.
 Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn promise to
discharge A from the liability. This is legally impossible, because C cannot discharge A from the debt due to B.
 Uncertain consideration: A engages B for doing certain work and promises to pay a “Reasonable some”. There is no
CL: There
recognizedwas
methodaof ascertaining
promisetheto“Reasonable
pay toSome”.the Thevakil anis additional
promise sum
unenforceable due if the suit
to uncertainty. was
 successful. Held,
E.g.,
Should not be illegal - thethe
supari topromise givenwas
kill someone.
consideration for an void formust
agreement the not want of consideration.
be unlawful. The vakil
A consideration to the contract
was under a pre-existing contractual obligation to render the best of his services
must not be against Public Policy, Immoral and illegal

 under
It mustthe original
be something contract.
which the promisor(Ramachandra
is not already bound Chintaman
to do: a promise tovs. Kalu
do what oneRaju)
is already bound to do,
either by general law or under an existing contract, is not a good consideration for the new promise, since it adds nothing
to the pre-existing legal or contractual obligation.
Exception to the rules of consideration
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
 Where an agreement is expressed in writing and registered
under the law for the time being in force for the registration of
the documents and is made on account of natural law and
affection between parties standing to the near relation to each
other, it is enforceable even if there is no consideration
 Promise to pay a time-bared debt: A promise to pay a time-
bared debt by the debtor is enforceable provided it is made in
writing and signed by the person to be charged therewith or by
his agent. The debt must be such “of which the creditor might
have enforced payment but for the law for the limitation of
suits”
 Completed gifts
 Compensation for the past voluntary services
 Charitable subscription
Exception to the rules of consideration

 Completed gifts –
 The rule No consideration, no contract does not apply to
completed gifts.
 In order to attract this exception there need not be natural
love and affection or nearness of relationship between
donor and donee. The gift must, however, be complete.
 Compensation for the past voluntary services - is
binding.
 E.g. P finds S’s purse and gives it to him. S promises to give
P Rs. 100/- This is a contract i.e., A promise, to compensate,
wholly or in part, a person, who has already voluntarily
done something for the promisor, is enforceable, even
though without consideration.
Exception to the rules of consideration

 Contribution to Charity:

 A person to contribute to charity , though gratuitous, would be enforceable,

if on the faith of the promised subscription, the promisee takes definite steps
in furtherance of the object and undertakes a liability, to the extent of
liability incurred, not exceeding the promised amount of subscription.

 E.g. The defendant had agreed to subscribe Rs. 100/- towards the
construction of a Town hall at Howrah. The plaintiff (secretary of the town
hall) on the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable. But where the
promisee had done nothing on the promise, a promised subscription is not
legally recoverable.

 E.g. The defendant promised to subscribe Rs. 500/- to a fund started for
rebuilding a Mosque but no steps had been taken to carry out the repairs.
The defendant was held not liable and the suit was dismissed.
Doctrine of Privity of Contract
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
 Meaning:
# The contract provided that P shall not sell the tyres below the
The general rule is that only the parties to a
list price. Also, the contract provided that P shall, at time of resale,
impose a condition on the retailer that sale by retailer shall not be
contract
made canlistsue
below the and be sued upon the contract.
price.
 In other words, if a person is not a party to the
# P sold certain tyres to S. S resold certain tyres below the list
contract (i.e., a stranger to contract), he cannot
price.
sue.
# In a suit instituted by D against S, the court held that such suit
It not
was implies the mutuality
maintainable since there wasof no
will andof legal
Privity contractbonding
between S and D.
Abetween the parties.
who is indebted to B, sells his property to C. C promises to pay
 off
It the debt to B. When C fails to pay; B has no right to sue C,
refers
because he isto the relationship
a stranger to contract. between the parties
who have entered into a contract.
 Stranger to Contract V. Stranger to Consideration
Exceptions
Beneficiary, – Stranger
in whose to Contract
favour a Trust of other interest has the
in some
immovable property has been created can enforce it, even
rightthough
to
UOI).
sue
he is in
not athe
party following cases:
to the Contract (Madhu Trading Co. V

 Trust or Charge
A husband who was separated from his wife executed a separation deed
by which he promised to pay to the Trustees all the expenses for her
 Marriage Settlement, Partition and other
maintenance. Held, the agreement created a trust in favour of his wife and
could be enforceable by her (Gandy V. Gandy).
family arrangements; and such agreements is
X receives money from Y for paying it to Z. X admits the receipt of that
reduced to writing.
amount to Z. Z can recover the amount from X, even though the money
is due from y.
 Acknowledgement of liability; by past
A holder in due course is entitled to the amount on a Negotiable
performance
The Purchaser
Instrument,
the
theland
even thereof
of though
immovable property
there who has notice
is no agreement betweenthat
himtheand
is bound by certain conditions or covenants created by an
maker/drawer.
owner of
agreement affecting the land, shall be bound by such conditions, even
 Assignment
though he is not aof a toContract
party the original agreement containing those
conditions or covenants.
 Contracts entered into through an Agent
 Covenants running with land
Essential Elements of a Valid Contract –
Capacity To Contract–Meaning
 Every person is competent to contract who is of:
 the age of majority according to the law to which he is subject,
 sound mind, and
 is not disqualified from contracting by any law to which he is subject.

 Section 11 declares the following persons to be incompetent to contract.

 Minors
 Persons of unsound mind
 Persons disqualified by any law for the time being in force.
 Idiot
 Lunatic with unsound mind
 Alien enemy
 Convicts
Minor - Meaning
 Minors: according to Section 3 of the Indian Majorities Act, 1875, a minor is
a person who has not completed eighteen years of age. In the following two
cases, he attains majority after twenty one years of age:

 Where a guardian of a minor’s person or property has been appointed

under the guardian and wards Act, 1890, or

 Where the superintendence of a minor’s property is assumed to be court

of wards.

 The rules governing minor’s agreements are based on two fundamental

rules:

 The first rule is that the law protects minors’ against their own
inexperience and against the possible improper designs of those more
experienced.

 The second rule is that, in pursuing the above object, the law should not
cause unnecessary hardship to person who deals with minors.
 Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for

Legal rules of Minors:

Case law:
from N.
settingM,
he paid
mortgage.
Aged
a side 17, agreed
the mortgage,
Rs.200/-
Held,
tothat
stating
as advance
the mortgage
purchase a second
he was underage
andtherefore,
was void and,
hand
when he
agreedit to
waspay
scooter
executed
the balance
cancelled.
the for Rs.5000/-
Further the next day
the money
and collect lender requested
the scooter. When forhethe repayment
came with of thebalance
the amount advanced
moneytonextthe day, N told him
minor as part of the consideration for the mortgage was also not accepted (Mohiri
that he has changed his mind and
Bibi vs. offered toGhose)
Dharamodas return the advance. N cannot avoid the
contract,
 though M with
An agreement may, minor
if he likes. (Sharafat
is void- Ali v/s Noor Mohd)
ab-inito:
Case

He law: M, aAPromisee
can be minor, borrowed Rs.5000/-incapacity
or a Beneficiary: from L andof executed a Promissory
minor to enter into a
notecontract
in favour of L. after attaining the majority, he executed another
means incapacity to bind him-self by a contract. There is nothingPromissory
notethat
in settlement
debars himoffrom
the being
first note. The second
a beneficiary. SuchPromissory notebeisenforced
contract may void foratthe
wantthe
of option
consideration. (Indran
of the minor andRama Swamy
not the v/s Anthiappa Chettiar)
other party.
 Minor cannot ratify his contract, on attaining majority: “Consideration
which passed under earlier contract cannot be implied into the contract
which the minor enter on attaining the majority. Thus consideration given
during the minority is no consideration. If it is necessary a fresh contract
may be entered into by the minor on attaining the majority provided it is
supported by a fresh consideration
 He can always plead minority: even if he has, by misrepresenting his age,
induced the other party to contract with him, he cannot be sued either in
contract or in tort for fraud because if the injured party were allowed to sue
for fraud, it would be giving him an indirect means of enforcing the void
agreement.
 Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to
refund the loan not only that, even his mortgaged property cannot be made liable
Legal rules of Minors:
to pay the debt.

 If he has received any benefit under a void agreement, he cannot be

asked to compensate or pay for it: section 65 which provides for
restitution in case of agreements discovered to be void does not apply
to the minor
 There can be no specific performance of the contract with minor,
since agreement with minor is void-ab-inito: Can’t file a suit for
specific non performance. But if a contract is entered into on his
behalf by his Parents / guardian then the same can be enforced by or
against the minor provided the contract is (a) within the scope of the
authority of the Parent / guardian, and (b) for the benefit of the
minor.
 He cannot enter into a contract of Partnership: a minor can be
admitted as a beneficiary of Profits of a Partnership firm already in
existence, with the consent of all the existing Partners. But he cannot
be admitted as a Partner
 He can be an agent: an agent is merely connecting link between
Principal and third Party. The movement the Principal and third party
comes into contract with each other, the agent drops out with any
personal liability, hence a minor can act as agent.
Legal rules for a Minor
 His Parents / guardian are / is not liable for the contracts of the minor: the
exemption to this rule is that where the minor act as an agent of his Parent /
guardian, the Parent / guardian shall be liable for his acts.

 He cannot be adjudged as an insolvent.

Case law: G, a minor, entered into a contract with R, a noted billiards player, to
pay him certain sum of money to learn the game and play matches with him during
hisHeworld
cannottour.
be a shareholder in a Company.

R spent time and money in making arrangements for billiards
matches. Held, G was liable to pay as the agreement was one for necessaries as

it He
wascaninbe member
effect “forinteaching,
a Trade union: A Person
instructions whoemployment
and attained the age
andofwas
14 years can
reasonable
be admitted as a member.
and for the benefit of the infant.” (Robarts v/s Gray)
 Minor’s liability for necessaries: a minor is liable to pay out of his property for
“necessaries” supplied to him or to anyone whom he is legally bound to support
(Section 68). The claim arises not out of contract but out of what are called Quasi-
Contracts. Again it is only the property of the minor, which is liable for meeting the
liability arising out of such contracts. He is not personally liable.
Legal rules for a Minor
 No rule of Estoppel to minor
 Estoppel means A person making a statement by words spoken or

written which induces others to believe and acted upon.

 Rule preventing a person from denying the truth of such a statement

made previously by words spoken or written, by which he has led

another to believe and acted upon.
 Therefore, he is stopped from denying the said statement.

 i.e. cant say no, so should act.

 Minor is liable for Tort

 Surety for a Minor: a person who stands as surety for a minor can be sued
though the minor himself would not be liable
Unsound Mind
 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 the
terms of the contract and
 To form a rational judgment as to its effect upon his interest.

 Therefore, if both of the above is not satisfied, then is a person

suffering of unsound mind.Eg:
 Idiots

 Lunatics

 Drunkards

 A person, who is usually of unsound mind, but occasionally of

sound mind, may make a contract when he is of sound mind
Lunatics
 Lunatic is a person who suffers from
intermittent intervals of sanity and insanity.

 All agreements made by lunatics during

intervals of sanity are valid

 Property of lunatic is liable for necessities of

life contracts but a lunatic cannot be held
personally liable
Idiots

 Idiot is a person who has completely lost his

mental balance.

 An agreement with an idiot is absolutely

void.
Drunkards

 A high level of intoxication make a

drunkards contract void

 A contract made by a person so intoxicated

as not to know the consequences of his act is
not binding on him
Few other Persons are also Prohibited to
enter into a contract.
 Alien Enemy.
 Insolvent.
 Foreign Sovereigns, their diplomatic staff
and accredited representatives of the
foreign states.
 Corporations (beyond MOA and AOA).
 Convicts
Contract by the other person disqualified
by law
 Alien enemy – Contracts with an alien enemy (who is a citizen of a foreign country which
is not in peaceful terms with India) are void on the grounds of public policy.
Contracts may be suspended during the war and may be revived after the war is over,
provided they are not time-barred.

 I Position of Contracts during War – An alien enemy can neither enter into contract nor
can be sued in an Indian Court except by the license by the Government.

 II Position of contracts during the war:

 If such contracts are against the public policy or are such that may benefit the enemy, then such
contracts are dissolved.

 If such contracts are not against public policy, then such contracts are merely suspended for the
duration of the war and revived after the war is over unless they have already become time barred
under the Law of Limitation.

 E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Y
who carries on business in India. Immediately after the formation of the contract, a war
broke out between India and Pakistan. In this case, X becomes an alien enemy though he is
Indian and contract between x and y (if not against the public policy) will be suspended for
the duration of the war and revived after the war is over.
Few other Persons are also Prohibited to
enter into a contract
 Foreign Sovereign and Ambassadors: - They can enter contract and enforce those
contracts in our courts but they cannot be sued in our courts without the sanction of
the Central Govt.

 Company under the companies act or statutory corporation under the special act of
parliament: - The contractual capacity of the company is determined by objects clause
of its Memorandum of Association, whereas that of the statutory corporation is
determined by the statute creating it. Any act in excess of the power given is ultra
vires and hence void.

 Insolvents - When a person is declared insolvent, it is only the Official Receiver or

Official Assignee who can enter into contracts relating to his property and sue and be
sued on his behalf. Thus, as soon as a person is declared insolvent, he looses his
contractual capacity.

 Convicts: A convict cannot enter into a contract while he is undergoing

imprisonment. Thus, this incapacity is only during the period of sentence.

 Insolvent – after the “order of discharge’’ he is competent to enter into contracts.

Essential Elements of a Valid Contract –
Free consent –Meaning
 The consent of parties are said to be free when they are of same
mind on all material terms of contract. The parties are said to be
of same mind when they agree on 3’s
 Same subject matter

 Same sense

 Same time

 If any one of the following elements are in agreement, we can

say that there is absence of free consent
 Coercion

 Undue Influence

 Fraud

 Mistake

 Misrepresentation
Coercion
E.g.A threatens B to shoot him if he does not release him from
debt which A owes to B. This is coercion.
 Coercion" is the
 committing, or threatening to commit, any
act/crime or
 the unlawful detaining, or threatening to detain,
any property or any act
 forbidden by the Indian Penal Code 1860
 with the intention of causing any person to enter
into an agreement.

 Threat to commit Suicide amount to Coercion

Undue Influence
 Undue Influence means:
 When a special kind of relationship exists between the parties

 such that one party is in a position to exercise undue influence

over the other.

 And such party uses his position to dominate the will of the

other party to obtain an unfair advantage over the other party

 Essentials:
 There must be two persons.

 The relationship should satisfy between them.

 One should dominate the other.

 There must be unfair advantage.

 It is a moral character
 Undue Influence
 Some of the examples where undue influence exists
between the following relations:
 Superior and subordinate

 Principal and agent

 Doctor and Patent

 Promoter and Company

Case Laws: A Spiritual guru induced his devotee to gift him the whole of
his Solicitor
 property andofClient
in turn a promise of salvation of the devotee. Held, the
consent of the devotee was given under the undue influence. (Mannu
 Father
Singh andPanday)
v/s Umadat Son
 Teacher and Student

 Spiritual guru and devotee

Undue Influence

 Under the following relationship there is no

assumption of undue influence.
 Husband and Wife
 Landlord and tenant
 Debtor and Creditor
 COERCION UNDUE INFLUENCE

Consent is given under threat The consent is given by a person

who is so situated in relation to
another that the other person is in
a position to dominate his will
Coercion need not proceed from Undue influence is between the
parties to the contract but can be parties to the agreement
done thro/by a stranger
Contract is voidable at the option The contract is either voidable or
of one of the parties of the contract the court may enforce it in a
modified form
Coercion is mainly of physical Undue influence is of moral and
nature psychological nature
Fraud
 Essentials:
 There must be a representation
 There must be two persons
 There must be an active concealment of the fact
 The person making the representation does not believe it to
be true
 There must be an intention of the proposer or the promiser
to deceive the other person
 The other person must have relied upon the representation
and must have been deceived and suffered loss
 The representation must have been made before the
Commencement of the contract
 The representation must relate to a material fact which
exists now or existed in the past
Fraud

 The party defrauded has the following

remedies:
 The contract can be rescinded within reasonable
time limit
 He can insist on the performance of the contract
on the condition that he shall be put in the
position in which he would have been if the
representation made had been true
 He can sue for damages
Misrepresentation

Essentials:
CL: A company’s prospectus contains a representation that it has
statutory powers to run its tramways by steam provide that the consent
theItgovernment
of  must be wasrepresentation of material
obtained. The directors issuedfact
prospects stating
therein that the company had the right to use steam power. They honestly
 It that
believe must be made
the permission before
for the the
use of steam conclusion
power would beof the
granted.
The permission was refused. The company was that wound up. Held, the
contract
directors were guilty of misrepresentation (Derry vs. Peek)
 It must be wrong but the person making it
believes it to be true
 It must have been made without any intention of
deceiving the other Person
 It need not be made directly made to the Plaintiff
 MISREPRESENTATION FRAUD
It is a false statement It is a false statement
without any intention to deliberately, or recklessly
deceive made to deceive another
It is also called innocent It is also called intentional
misrepresentation misrepresentation

It makes the contract It besides avoiding the

voidable at the option of contract. The aggrieved
the party injured party also has right to sue
for damages
Mistake
 Mistake may be defined as an erroneous belief
about something.

It may be of two kinds

 mistake of law
 Mistake of own country
 Mistake of foreign country

 mistake of fact
 A bilateral mistake
 Unilateral mistake
Mistake of law

 Mistake of law of the country is no excuse,

is a well-settled rule of law. A Party to the
contract cannot be allowed to ask for relief on
 theA & Bground
E.g. that
purchases and sells athe
plot ofact
land ofwas done
195 sq.mts. in
in Dublin,
ignorance of law. on a plot less than 200 sq.mts. The contract
believing that a house can be constructed over it. Actually in Dublin
house cannot be constructed
can be avoided.

 Mistake of law of a foreign country: such

mistake is treated as mistake of fact, and such
agreement is treated as void.
Mistake of
E.g. A person was fact
induced
was a power attorney.
to sign a gift deed (will), on the presentation that it
 Unilateral Mistake - Unilateral means only one party to a contract is under a mistake of
E.g. X goescan
fact. A contract to be
a shop and
avoided onintroduces
the ground himself as Ymistake,
of unilateral and purchases
if it can besome
showngoods
that
on credit. The contract is void.
mistake was caused by Fraud or misrepresentation.
Types:

A unilateral mistake may be-

 Mistake as to the nature of transaction
 Mistake as to identity of party

E.g. X goes
Bilateral to a
Mistake -shop
Whereand
bothintroduces
the parties tohimself as Y are
an agreement andunder
purchases
a mistakesome
as to a
matter of fact, the agreement is void.
goods on credit. The contract is void.
Types

Mistake as to existence of subject-matter

Identity of subject-matter
Title of subject-matter
Quality of subject-matter
Quantity of subject-matter
Price of subject-matter
E.g. A agrees to buy a horse from B at certain price. The horse was dead at the time of
bargain and neither party was aware about the fact. Held, the agreement is void.
Lawful objects
 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;
 of involves or implies, injury to the person or property of
another; or
 the Court regards it as immoral, or
 opposed to public policy

 Every agreement of which the object or

consideration is unlawful is void.
Lawful objects
 It is forbidden by law - An act is forbidden by law when it is punishable
under the criminal law or is prohibited by special legislation or regulations
made by the competent authority.

 is of such nature that, if permitted it would defeat the provisions of any law

 is fraudulent - an agreement if any made for any fraudulent purpose is void.

Thus, an agreement with an intention of fraud of creditors with a view to
defeat their right is void.

 of involves or implies, injury to the person or property of another - injury

means wrong, harm or damage. Person means ones body, property includes
both movable and immovable.

 the Court regards it as immoral - an agreement, the consideration or object of

which is immoral, e.g., agreement between husband and wife for future
separation, is unlawful (Sumitra Devi v/s Sulekha Kundu)

 opposed to public policy – An agreement which is injurious to the general

public or is against the interest of the society
VOID AGREEMENTS
 Agreements by incompetent parties
 Agreements under mutual mistake of fact material to the
agreement
 Agreement with unlawful consideration or object – (a) immoral
& illegal agreements (b) agreements opposed to public policy
 Agreements unlawful in part
 Agreements without consideration
 Agreements in restraint of marriage
 Agreements in restraint of legal proceedings
 Agreements which are uncertain and ambiguous
 Agreement by way of wager or wagering agreements
 Agreements to do impossible acts
Bailment, Bailor and Bailee
 Bailment is
 The delivery of goods, by one person to another, for some
purpose,
 Upon a contract that they shall, when the purpose is
accomplished,
 Be returned or otherwise disposed of,
 According to the instructions of the person delivering
them. (Section 148)
 Bailor
 is the person delivering the goods
 Bailee
 is the person to whom the goods are delivered.
Essentials of Bailment
 Contract
 Delivery of the Goods – Delivery of
possession of goods by Bailor to Bailee
 Possession (not ownership) is transferred
 Modes of Delivery
 Purpose (goods must be returned after a
specific purpose is accomplished)
 Consideration (generally in the form of
money payment)
Duties of the Bailor
 Disclose faults in goods (Sec 150)
 Bear Expenses (Sec 158)
 Indemnify(secure in respect of harm) Bailee
(Sec 159 & Sec 164)
 Receipt of Goods back on termination of
bailment
Duties of Bailee (or) Rights of Bailor
 Care of Goods (Sec 153)
 To act consistently with the terms (Sec 153)
 Compensation for damage to goods (Sec 154)
 Not to mix goods bailed with others
 With bailor’s consent (Sec 155)
 Without bailor’s consent
 Return of the goods bailed (Sec 160)
 Compensation for failure to return (Sec 161)
 Increase or profit from goods bailed (Sec 163)
 Delivery of goods to Joint Bailors (Sec 165)
Rights of Bailee

 Enforcement of Bailor’s duties

 Delivery of goods to Joint Bailors
 Delivery of goods when Bailor’s title is
defective (Sec 166)
 Right of Lien (Secs 170 & 171)
 Wrongful deprivation of goods (Secs 180 &
181)
Pledge

 Pledge is a Bailment of goods as security for

payment of a debt or performance of a
promise
 Pawnor is the Bailor of such goods
 Pawnee is the Bailee of the goods
 Eg., A borrows Rs.200 from B and keeps his
watch as security for payment of the debt,
the bailment of watch is a pledge.
Essential Elements of a Contract of
Pledge
 Delivery of Goods (may be actual or
constructive)
 Security
 Goods – Only goods can be pledged. Goods
includes Shares, Documents, Promissory
Notes, Bills of Exchange or Valuable things.
However, money i.e., currency notes, cannot
be pledged.
Rights of a Pawnee/Pledgee
 Right of Retainer (Sec 173)
 Retainer for subsequent advances (Sec 174)
 Reimbursement of Expenses (Sec 175)
 Rights in case of default by Pawnor (Sec 176)
 Suit
 Retention/Sale of Goods
 Surplus/Deficit on Sale
 No Notice
 Right against true owner (Sec 178A)
Rights of a Pawnor

 To get back goods

 To redeem goods before sale (Sec 177)
 Right to Notice of Sale
 Goods in proper condition
Pledge V. Bailment
 Pledge  Bailment
 Purpose: specific  Purpose: other purposes
 Sale of goods: Pledgee like repairs, safe custody,
has a right of sale of etc.,
pledged on default of  Sale of goods: No right
pawnor  Use of goods: Can use as
 Use of goods: No right per the terms of the
contract
Law of Agency

 Definitions (Sec 182)

 Agent Is a person employed
 To do any act for another, or
 To represent another in dealings with third parties
 Principal
 Is the person
 For whom such act is done, or
 Who is so represented
Who can appoint Agent (Sec 183)

 Any person who

 Has attained the age of majority
and
 Is of sound mind,
can appoint another person as his agent to
act on his behalf with an authority to bind him.
Who may become Agent (Sec 184)

 As between Principal and the third party,

any person can become an Agent.
 Even a person who
 Has not attained majority; or
 Is of unsound mind, can become an agent of
another.
Essentials of a Contract of Agency

 Test for Agency

 Rules as to Agency (Maxim: qui facit per
alium facit per se)
 Elements of Agency
 Intention
 Express/Implied Agreement
 Consideration not necessary
 Capacity to employ agent
 Capacity to be employed as agent
Kinds of Agents

 Based on Authority
 Universal Agent
 General Agent
 Special Agent
 Based on Nature of Work
 Commercial or Mercantile Agents
 Non-mercantile Agents
Duties of an Agent/Rights of the
The Principal instructed his agents to deliver goods only against
cash but agent delivered them on credit. Held Agent was liable for
the
A, price which
an agent forthe purchaser
sale of goods,failed
havingto authority
pay (Paulto
Bier
sellV.on
Chottalal)
credit,
Principal
sells to B on credit, without making proper and usual enquiries as
to his solvency. B, at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
To act as per Principal’s directions (Sec 211)
 sustained.

 Skill and diligence (Sec 212)

 Render proper Accounts (Sec 213)
 Communicate with Principal (Sec 214)
 Not to deal
A employs on Rs.
B to recover his1 lac
ownfrom account
C. Through B’s(Secs 215 &
misconduct
216)
the money is not recovered from C. B is not entitled to
remuneration for his services, and shall make good the loss
sustained.
 Pay all sums received (Sec 218)
 No remuneration for business misconducted
(Sec 220)
 Contd.,

 Not to make secret profits

 Not to disclose information
 Upon termination of agency (Sec 209)
 Not to delegate authority (Sec 190)
 Liable to pay damages
Rights of an Agent/Duties of the
Principal
 Right of Retainer (Sec 217)
 Right to Remuneration (Secs 219 & 220)
 Right of Lien (hold property to recover debt
Sec 221)
 Right to be indemnified (Secs 222, 223, & 224)
 Right to compensation (Sec 225)
 Right of stoppage in transit
 Liability of Principal inducing others (Sec 237)
 Mode of creation of Agency
A residing in Delhi and has a house at Kolkata. He
appoints B in Kolkata, by a Power of Attorney, as a
Acaretaker
owns a shopof hisinhouse.
Noida but lives in Delhi. He visits the shop
occasionally which is managed by B. B usually orders from C in
 A’s namemay for have
Express Agreement
* Agent the shop, and
to sell paysinstantly
goods them outifof it A’s
is offunds with A’s
perishable nature
knowledge.
and B has an implied
cannot withstand authority
until further from A tofrom
instructions order goods from
Principal.
*CAinhorse
his name
sent for
by the
rail shop.
 station master has to was
Implied Agreement not taken delivery at the destination. The
feed the horse. The Station master becomes
Aan without
Meaning:
Agent byauthority,
When buys
a person
necessity andgoods,
does
hence for
theB.owner
some Later
act B
on shallsells
behalf them
of to C on
another
compensate him.his
own account;
Agency
without suchby B’s conduct
Estoppel
other’s implies a
knowledge, theratification
act may be of ratified(to
purchase made for
him by A. or sanction or confirm) or disown by the other person.
approve
*Agency by
When he opts to Holding
ratify the same, Out he is bound by the acts as if he
Phad consigns
Partners
expressly authorised the person not
goods
are considered
to N with instructions
as Agents toofdo
each
to the
sellother
below
act and
on ahis
fixed
also price.
of theJ
behalf
enters
Firm.
(Sec into an agreement with N (who also does not indicate the reserve
196).

price)Agency
* The
in caseof
formanagement
the purchase of Necessity
of entire lot at ais
a Company sum below reserve
considered to actprice.
as an P keeps
quiet.
P allows P isservant
his
Agents stopped Afrom latergoods
to buy
of the Company. denying
for that
him N ondid not have
credit from the C andauthority
pays to for
 Agency by Ratification
themsell below the
regularly. Onreserve price.
one occasion, P pays A cash to purchase goods. A
purchases goods on credit and pockets the money. C can recover the price
from
By operation of Law
 P since through previous dealings, P has held out A as his Agent.
Conditions for a Relationship to be an
agency by necessity:
 Agent should neither be in a position nor have any
opportunity to communicate with his Principal
within the time available.
 Actual and definite commercial necessity to act
promptly.
 Acted bonafide and for the benefit of his Principal.
 Adopted the most reasonable and practicable cause.
 Possession of the goods belonging to his principal
and which are subject of contract.
Termination of Agency
 By Act of Parties
 Agreement (mutual agreement)
 Revocation by Principal thro notice
 Renunciation by Agent thro reasonable notice
 By Operation of Law
 Completion of Business
 Impossibility of performance
 Expiry of fixed period of time
 Insanity or death of Principal or Agent
 Destruction of subject matter
 Insolvency of Principal
 Termination of Sub-agent’s authority
 Dissolution of a Company
 Principal or Agent becoming Alien enemy
Performance of Contract

 Obligations of Parties to Contracts

 Actual Performance: If the promisor makes an
offer of performance to the promisee and the offer
to perform is accepted by the promisee.
 Attempted Performance: If the promisor makes an
offer of performance to the promisee; but the offer
to perform is not accepted by the promisee (also
called offer to perform or tender)
Persons liable for, and entitled to,
Performance (Sec 40 & Sec 42)
 Persons liable for  Persons entitled to
Performance: Performance:
 Promisor  Promisee
 Agent of Promisor  Agent of Promisee
 Any of the several joint  All the joint promisees
promisors together
 Legal Representatives of  Legal Representatives of
a Promisor a Promisee
Performance of Joint Promise

 Jointly and severally liable unless otherwise

provided
 Claim from other joint promisors, if he is
compelled to perform the whole promise or
makes a default in performance of his
promise
 Where one of the joint promisors is released,
other joint promisors shall continue to be
liable.
Discharge of a Contract

 Means termination of contractual relations

*A agrees to sell his bicycle to B and both performed their
respective obligations, the contract is said to be discharged.
between the
* In case of parties
Attempted to a
Performance,contract.
since the offer is not
accepted by the other party, the promisor is discharged.
 Modes of Discharge of Contract:
 By performance
 By impossibility of performance

 By mutual agreement

 By lapse of time

By operation
 Where of law by a party is due but the party
the time of performance
fails to perform within the time specified, the contract is
By breach
discharged of contract
by non-performance provided that the contract
contained such specific mentioning.
Discharge by Impossibility of
Performance
 Meaning:
Not called asIf
E.g., no impossibility
supervening impossibility: existed at the
time
• •
of formation
Destruction
Commercial ofimpossibility
subject matter of inthe
(rise prices,contract; but the
currency fluctuations)
Incapacity
• •Default bytothird
perform
partya contract of personal service
impossibility
Outbreak
• •Strikes, Civil
of war arises subsequent to the
disturbances
formation
Non-existence
• •
contract,
or of
Self induced impossibility the
non-occurrence contract;
(deliberate
of things
act or
etc., of objects or partial impossibility
forming and
negligence)
the basis ofthe
a
Partial failure
•
impossibility
Krell
• • V Henry Case is
In H.B.Steamboat Co.,of
law: suchCase
V Hulton nature
law: that it makes
the
• •
performance
XXhired
agreed
Edward.
a room from
to hire a boat of
Y forfrom contract
viewing
Y forthe is
thecoronation
purpose impossible
ofprocess
naval review on the eve of coronation of king and for sailing
viewingoftheKingor

illegal
•The
around isthecalled
procession fleet. supervening
was cancelled because ofimpossibility.
King’s illness
Since
• •Due totheKing’s
ultimate
illness,
and only
the naval
purpose
reviewof the
wascontract
cancelled,
wasbut
defeated,
the fleet
 Reasons
the
wascontract for
assembled. SI: may arise because of change
was discharged.
in XAlthough
used the boat for sailing around the fleet.
law ortheofprimary
change inofcircumstances beyond
•
• purpose the contract was defeated, the
thesecondary
contemplation of
purpose was fulfilled parties.
and, therefore, the contract was
not discharged by supervening impossibility.
Discharge
contract. Theby Mutual for theAgreement
means substitution of a new contract in place of the original
consideration
discharge of the original contract.
new contract is the
* means a change in one or more of the terms of a contract with mutual
consent of parties.
* Discharges the original contract and creates a new one
 Novation
* Parties remain the same
 Alteration
 Remission
 Rescission (cancellation
Where a promisee ofwith
agrees to dispense a the
contract byof one
performance a
promise made to him or
orExtend
all the parties
the time to thedue
of performance contract)
by the promisor or
Accept any other consideration than agreed to in the contract,
 Merger
etc., (conversion of an inferior right into a
superior right and the effect is due to
conversion inferior right is discharged)
Discharge by operation of law

 Death (Contracts involving personal skills,

knowledge or ability of the deceased party
are discharged automatically on the death of
the promisor).
 Insolvency
 Unauthorized material alterations
Discharge by Breach of Contract
•Where the promisor declares his intention of not performing the
contract even before the time stipulated for performance of
 Meaning: Failure of a party to perform his
contract has arrived, it is called as anticipatory breach.
•Express Repudiation: If before the time or performance of
part of contract
contract has arrived, a party expressly refuses to perform the
contract, it is called as express repudation.
 Consequences:
•Party disables himself: Impossible for him to perform the
contract, this is called as anticipatory breach by disablement of
 The other party is relieved from performing its
a party.
part of obligation.
•Effects Option 1: The aggrieved party may wait till the due date,
i.e., it may treat the contract as operative.
 The other
•Option party
2: The is entitled
aggrieved party may to proceed
decide against
not to wait the
till the due
date. It may immediately rescind the contract and claim
party
damages at fault.
for breach.
 Actual Breach (on the due date or during
performance)
 Anticipatory Breach
Remedies for breach of a contract

 Rescission (means a right available to an

aggrieved party to terminate a contract)
Effects: - The aggrieved party is not required to perform his part
 Suit for damages
A promises
of obligation;
B to perform a concert for 3 weeks continuously. A
wilfully absents on the third week. B rescinds the contract. B can
- The aggrieved party can claim compensation for any loss caused to
 Suit
him. for
claim forspecific performances
loss sustained
performance.
for loss sustained due to non-
Meaning: Monetary compensation allowed for loss suffered by
.Specific performance means seeking an order from the court that
 Suit
the for injunction
the aggrieved
promise
party due to breach of a contract.
specified in the contract shall be carried out.
Object is Not to punish the party at default and To make good
. When actual damages arising from breach are not measurable
 Suit for
the Quantum
financial
Injunction
and monetary
lossan
means Meriut
suffered
order
compensation
breach of contract.
bythe
of the aggrieved
is notcourt
party due
restraining
an adequate
to from
a party
remedy, then SP is
e.g., N, a film
carrying
allowed. outstar, agreed to
a particular act exclusively for a particular
act.
producer,
. The
Where for one
remedy
damages year.
is available
are anDuring
whenthe
adequatetheyear, she
court
remedy;hascontracted to actwhether
the discretion
where for
the performance
If or
some
E.g., a party
Anot toprevents
other producer.
grant
contracts the other
Held,
injunction;
with Bnumerous party
she
where
to deliver tofrom
could becompleting
aminute
party
him restrained
250 to his
by
the contract
kilos ofand, obligation
ricean promises
before
of contract involves or details, therefore, it
under
1 injunctionthe contract,
(Warner the aggrieved party may claim payment on
tonot
may. doApossible
an
could forBros.
act which
deliver V Nelson)
requires
only 130personal
kilos performance
before 1 performance
may, andbut could
afterwards
st st
is the court to supervise the of the
quantum
refuses
notcontract. meriut for
to perform
deliver anything the part
such
later. of
B act contract
resulting
retains already
in breach
130 kilos performed
date. Hehim.
of contract,
after that by the
court may
is bound to pay restrain the defaulting party from performing such act
A for them.
in future.