DR.

KAPIL KHATTER M-98280-44221

MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

The Indian Contract Act 1872

The Indian Contract Act came into force from 1st September 1872. It has been amended in
1886, 1891, 1899, 1930, 1932 & 1997.
At present this contract Act contains following provisions-
A. General Principles of law of contract (Section 1 to 75)
B. Specific Contracts-
 Indemnity & Guarantee (Section 124 to 147)
 Bailment & Pledge (Section 148 to 181)
 Agency (Section 182 to 238)
Scope- Presently this Act applies to the whole of India.
Contract- Meaning & Essentials
Types of Rights-
1. Right in Personam (Jus in Personam)- It means a right against a particular person/persons.
2. Right in Rem (Jus in Rem)- It means right available to a person against the whole world.
The rights created by a contract are purely in personal in natural and only enforceable by action
against the party in default.
Contract- A contract is an exchange of promises by two or more persons, creating an obligation
to do or restrain from doing a particular act which is enforceable by law. The law gives a
remedy for the breach of promise and recognizes its due performance as a duty.
Definitions-
According to Section 2 (h) of Indian Contract Act 1872- “An agreement enforceable by law”
According to Justice Salmond- “A contract is an agreement creating and defining obligations
between the parties.”
According to Sir Fredrick Pollock- “Every agreement and promise enforceable at law is a
contract.”
According the William Anson- “A contract is an agreement enforceable at law made between
two or more persons by whom rights are acquired by one or more to persons to acts or
forbearances on the part of the other or others.”
Contract = Agreement + Enforceability
Agreement = Offer + Acceptance
Essentials of a valid contract
1. At least two parties
2. Proposal (Offer)
3. Acceptance
4. Intention to create legal relations
5. Contractual capacity
6. Free consent
7. Consideration
1
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

8. Lawful Object & Consideration

9. Certainty of meaning
10. Possibility of performance
11. Agreements not declared void
12. Other legal formalities
AT LEAST TWO PARTIES
A person can’t make a contract with himself, so there must be at least two persons or parties.
One of them is known as Proposer or Promisor and other one is known as Offeree or Promisee.
The parties are known by different names in different contracts.
In Contract of sale- Buyer & Seller
In Contract of lease- Lessor & Lessee
In Contract of Insurance- Insurer & Insured
In Contract of Rent- Tenant & Landlord
PROPOSAL OR OFFER
According to Section 2(a) of Indian Contract Act 1872- “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.”
The person making the proposal is known as the proposer or offeror and the person to whom
the proposal is made is known as the Offeree. On acceptance of the proposal, offeror is called
the Promisor and the person accepting the proposal is called the Promisee or acceptor.
Types of Offer-
1. On the basis of Mode of Offer- Express offer & Implied Offer
2. On the basis of offerees- Specific offer & General offer
(Case- Karlill v/s carbolic smoke ball company)
3. On the basis of Nature of offer- Cross offer, counter offer & standing offer
Legal rules regarding Proposal or Offer
1. At least two parties
2. May be positive or negative
3. Must be with a view to obtain the assent
4. Intention to create legal relations (Case-Mr. Balfour v/s Mrs. Balfour)
5. May be express or implied
6. May be specific or general
7. Must be definite
8. Must be communicated (case-Lalman Shukla v/s Gauri Dutt)
9. Terms & Conditions must be communicated with the offer
(Case- Olley v/s Marlborough court Ltd 1949)
10. Offer should not bind the other party to reply.
11. A statement of price is not an offer
12. Different from intention to put an offer
2
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

13. Different from invitation to put an offer.

Invitation to put an offer
The acceptance of offer creates an agreement whereas the acceptance of invitation to offer
gives birth to an offer.
Examples of invitation to an offer-
1. Catalogue or price list
2. Menu card of restaurant
3. Price tags attached with the goods
4. Advertisement to sell goods
5. Tender advertisement
6. Prospectus
7. A quotation of price in response to an inquiry
8. Time table of railway and roadways
ACCEPTANCE
According to section 2(b)- “When the person to whom the proposal is made, signifies his
assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a
promise”
Legal rules regarding acceptance-
1. Must be absolute
2. Must be in prescribed manner
3. May be given by performance of conditions.
4. May be given by acceptance of consideration
5. May be express or implied
6. Must be given with in specified or reasonable time
7. Must be given while the offer is in force
8. Must be given by a person to whom offer is made
9. Must be communicated (Case- Brogden v/s Metropolitan railway company 1877)
10. Must be by appropriate authority (Case-Powell v/s lee 1908)
11. It should be communicated to offeror/agent
12. Rejected offer can not be accepted
13. Counter offer does not constitute acceptance
14. Cross offer can not constitute acceptance
15. Silence does not amount to acceptance
16. Acceptor must be by able & willing to perform
Communication of offer- communication of offer is complete when it comes to the knowledge
of the person to whom it is made
Communication of acceptance-

3
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

A. Against offeror- when it is put into the course of transmission so as to be out of the
power of acceptor.
B. Against acceptor- when it comes to the knowledge of the offeror. (Section 4)
According to English law acceptance completes with the posting of letter of acceptance,
against offeror and Offeree.
General Rules-
1. In case of incorrect address- If it is due to the fault of acceptor, the communication is
not completed. If it is due to the fault of offeror, the communication is completed.
2. Delay or no delivery of letter- It will not affect the validity of acceptance.
3. Acceptance by telephone or fax- Communication is complete when the acceptance is
received by the offeror.
4. Place of contract- In case of letter- where it is posted
In case of telephone or fax- where acceptance is received
5. Time of contract- In case of letter- when it is posted
In case of telephone/fax- when offeror gets the communication
6. Communication to agent- communication is complete when it is given to agent,
whether agent has conveyed it to the principle or not.
Revocation of offer- Modes of Revocation/Rejection of offer
1. By notice
2. By lapse of time
3. By failure to fulfill conditions
4. By death/insanity of offeror
5. By counter offer
6. By acceptance according to non prescribed or usual mode
7. By death/insanity of offeree
8. By destruction of subject matter
9. By change in law
10. By rejection of offer
Revocation of Acceptance- The acceptance may be revoked at any time before the offeror
comes to know about the acceptance. The Indian law allows the revocation of acceptance but
the English law does not permit revocation of acceptance.
INTENTION TO CREATE LEGAL RELATIONS
For an agreement to be a contract, it must be able to create legal relations. Whether or not any
agreement creates legal relations between the parties, would depend upon the intentions to the
contract. If they intend to do so, the agreement is legally enforceable.
There are large numbers of social, domestic & political agreements which do not create legal
relations, because the parties to the agreement do not intend to create legal relations, hence they
do not become contracts. (Case- Mr. Balfour v/s Mrs. Balfour 1919,2,KB)

4
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

CAPACITY TO CONTRACT
According to section 10 “All agreements are contracts if they are made by the parties
competent to contract.” Capacity or competence to contract means legal capacity of parties to
enter into a contract. The law ordinarily presumes that every person is legally competent to
contract if he fulfills following three conditions-
1. He/she has attained the age of majority
2. He/she is of sound mind
3. He/she is not disqualified from contracting by any other law.
It can be said that following persons are not competent to contract-
1. Minors
2. Persons of unsound mind
3. Persons disqualified from contracting by any other law.
MINOR
According to section 3 of Indian Majority Act- “A minor is a person who has not completed
eighteen years of age.” But the same Act also mentions that a where a court has appointed
guardian for a minor then he/she attains majority only after he/she completes his/her age of
twenty one years.
Nature of Minor’s Agreement-
1. Void-ab-initio
2. Minor can be a promisee or beneficiary
3. No ratification
4. Rule of estoppels will not be applicable
5. No restitution (Case- Mohri bibi v/s Dharmodas Ghosh)
6. No specific performance
7. Contract by parent/guardian/manager- valid if contract is for the benefit of minor
8. No liability of parents
9. Minor agent
10. Guarantee for and by minor
11. Minor and insolvency
12. Minor as joint promisor
13. Minor shareholder
14. Minor partner
15. Minor and negotiable instrument Act
16. Service contracts- void but can be enforced if minor is beneficiary & he/she has
performed his promise.
17. Minor as trade union member (15years)
18. Marriage contracts- valid according to their custom.

5
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

19. Liability for necessaries of life- In order to recover the price, supplier will have to
satisfy the following conditions-
 The things supplied must be necessaries of life
 The things must be suitable to the conditions in life of the minor.
 The minor must be in need of such things.
Persons of unsound mind
According to section 12- “A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of understanding it and of forming a
judgment as to its effect upon his interests.”
The soundness of mind is required only at the time of making a contract. If a person becomes
of unsound mind after making a contract, the validity of contract remains unaffected. If a
person who is usually of unsound mind, may also enter into contract, when he is of sound
mind. If a person who is usually of sound mind, but occasionally of unsound mind may not
make a contract when he is of unsound mind.
Types of persons of unsound mind-
1. Idiot- An idiot is a person who is of unsound mind by birth. His incapacity is permanent
and at no time, he is of sound mind. The agreement of an idiot is absolutely void-ab-
initio. He is not personally liable even for the payment of necessaries of life supplied to
him.
2. Lunatic- A lunatic is a person whose mental powers are reduced due to some disease or
mental strain. The lunacy is curable. A lunatic may have intervals of sanity and insanity.
He can make contracts during those intervals when he is sane. The contracts made by the
guardian on behalf of a lunatic can be enforced and his estate is liable for contracts.
3. Delirious persons- A person delirious from fever is also not capable of understanding the
nature of an agreement so he can not enter into a contract so long as delirium lasts.
4. Hypnotized person- Hypnotism produces temporary incapacity till a person is under the
effect of artificial sleep.
5. Intoxicated person- An intoxicated person is temporarily incompetent to contract. The
mental powers of such a person are clouded for the time being when he is under the
effect of drink or intoxication. He can not enter into contract during the period when he
is under the effect of such things.
Effects- The agreements made by a person of unsound mind are absolutely void. If agreement
is for his benefit, it can be enforced. Agreements made by such a person for supply of
necessaries of life to him or to his dependent are valid as quasi contracts under section 68. For
such a contract, he is not personally liable for them but his assets are liable.
Other legal provision-
1. Law presumes that all persons are of sound mind unless otherwise proved.

6
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

2. It is the duty of every person making a contract to know about the soundness of mind of
another person. Agreement made in ignorance of unsoundness of another person is also
void.
3. In case of a person who is usually of sound mind and wants to rescind the contract on the
ground of insanity, burden of proof lies on him to prove that he was of unsound mind at
the time of making the contract.
4. In case of a person who is usually of unsound mind wants to rescind the contract on the
ground of insanity can rightfully rescind it. If the other party wants to enforce it then he
has to prove that the contract was made at a time when the aggrieved party was of sound
mind.
Persons disqualified by other law
1. Alien enemy- Alien means foreign citizen living in India. When as alien is declared as
alien enemy, (Due to war or for any other reason) he can not enter into a contract with
any Indian national so long as the declaration is in force. The contract made before the
declaration, stands suspended till such declaration remains in force.
2. Foreign diplomatic staff- foreign governments, their representatives and diplomatic staff
(Ambassadors) have full capacity to contract in India but they can claim their privilege
of not being sued. They can not be sued unless they voluntarily surrender themselves to
the jurisdiction of Indian law/courts or the central government permits to sue them.
3. Corporations and companies- it is competent to make contract with in the scope of the
memorandum of association. Any contract made beyond the memorandum is void.
4. Insolvents- official receiver or official assignee alone can make contract as to sale of
insolvent’s property and sue & be sued on his behalf.
5. Convicts- A convict during the period of his imprisonment becomes incompetent to enter
into contract and to sue on contracts made before conviction.
6. Women- Indian law makes no difference between men and women as regards to their
contractual capacity. A woman (whether married or not) can enter into contract and sue
and be sued in her own capacity with respect to her property.
Even husband and wife can enter into a valid contract. They can sue each other because
they are independent persons and have separate legal entity. No husband can be held
liable for the contracts made by his wife unless he allows her to act as his agent.
However a husband is liable for contract made by his wife for supply of necessaries of
life.
Note- Advocates & Doctors now have right to contract and sue for his fees.
FREE CONSENT
Consent is a state of meeting of minds between the parties to the contract. According to Section
13- “Consent is said when two or more persons agree upon the same thing in the same sense.”
Free consent is the consent given by the sweet will of the parties and not caused by any form of
7
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

physical or mental force or any kind of mistake. According to section 14, consent is said to be
free, when it is not caused by-
1. Coercion (Section 15)
2. Undue Influence (Section 16)
3. Fraud (Section 17)
4. Misrepresentation (Section 18)
5. Mistake (Section 20, 21 &22)
The consent is not free when it has been caused by any of the above five factors.
Coercion
Coercion means and includes the use or threatening to use the physical force against a person
or property to compel him to enter into a contract. Coercion means the following acts or threats
of a person with the intention of causing any person to enter into an agreement-
1. Committing or threatening to commit any act forbidden by I.P.C. or
2. Unlawful detaining or threatening to detain any property of another.
Essentials-
1. Committing any act forbidden by IPC
2. Threatening to commit any act forbidden by IPC
3. Threat to suicide amount to coercion
4. Unlawful detaining of any property
5. Unlawful threatening to detain any property
6. The intention must be to compel the other person for contract
7. Coercion may proceed either from the party or from a stranger
8. Coercion may be directed against the party or any other person.
9. The place of coercion is immaterial.
Following threats do not amounts to coercion-
1. Threat to sue
2. Threat to strike
3. Detaining property under mortgage
Effects- 1. Voidable contract 2. Restitution
Burden of proof- It lies upon the person who wants to avoid the contract on the ground of
coercion. He will have to prove that he would never have entered into contract if the coercion
had not been directed against him.
Undue Influence
When a dominant party misuses his influences to dominate the will of the weaker party, to get
unfair advantage, in a contract, the contract is said to be influenced by undue influence. Undue
influence is a kind of moral coercion.
According to section 16 “A contract is said to be induced by undue influence where the
relations subsisting between the parties are such that one of the party is in a position to
8
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

dominate the will of the other and uses that position to obtain an unfair advantage over the
other.
Essential elements-
1. The relation between the parties-
 One party holds real or apparent authority
 One party stands in fiduciary relationship
 One party’s mental capacity is affected by reason of age, mental or bodily stress
2. The use of dominant position
3. The dominant party obtains unfair advantage.
No presumption of dominant position-
1. Husband and wife
2. Creditor and debtor
3. Landlord and tenant
4. Principle and agent
In such relationships, the undue influence shall have to be proved.
Effects- 1. Voidable contract 2. Absolute rescission 3. Conditional rescission
Burden of proof- The burden of proving undue influence ordinarily rests on weaker party who
wants to rescind the contract. He will have to prove-
1. That the other party to the contract was in a position to dominate his will.
2. The other party used his dominant position to enter into the contract.
3. That the other party used his position to obtain unfair advantage in the contract.
When these facts are proved by the weaker party, the burden of proving that such transaction
was not induced by undue influence shifts upon the person in a position to dominate the will of
the other.
Contracts with pardanashin woman- Generally a contract with pardanashin woman is presumed
to have been induced by undue influence so court provides special protection to such a lady.
She is entitled to avoid any contract made by her on the plea of undue influence unless the
other party to the contract satisfies the court-
1. That the terms of contract were fully explained to her.
2. That the contract was made by her with full understanding of the nature and effect of it.
3. That she was in receipt of independent advice in the matter &
4. That she freely and deliberately consented to the contract.
Fraud
Fraud is the intentional misrepresentation or concealment of material facts of an agreement by
a party or by his agent with an intention to deceive and induce the other party to enter into an
agreement.
Essentials of Fraud-

9
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

1. The parties committing fraud- Party to contract or his agent can commit fraud. A fraud
committed by a stranger to the contract does not amount to fraud.
2. The fraudulent acts-
 False statements and suggestions- Any false statements or suggestions as to facts
of the contract can constitute a fraud if the person making it does not believe it to
be true.
 Concealment of facts- In active concealment a party takes some positive steps to
conceal material facts or to prevent the information. Such a concealment of facts
of prevention of information amounts to fraud. When a party keeps silence as to
material facts or does not disclose material facts, it is known as passive
concealment. Such a silence or nondisclosure does not constitute fraud unless the
party is under the duty to speak.
 A promise not intended to be performed- Any promise made without any intention
of performing it, also amounts to fraud.
 Declared fraudulent act- Committing any act or omission which has been
specifically declared to be fraudulent by the law also amounts to fraud.
3. Intention to deceive- Any fraudulent act of a party will amount to fraud only when it is
committed with an intention to deceive the other party.
4. The act must have deceived- Any fraudulent act done with a mere intention to deceive
the other party will not amount will not amount to fraud unless it has deceived the other
party.
5. The party must have suffered- “A fraud without damage” or “Damage without fraud” is
not a fraud in terms of Indian contract Act.
Silence as fraud- Silence as to facts is not fraud except where the person keeping silence is
under the duty to speak. The persons keeping silence is under a duty to speak in the following
types of contracts-
1. Contracts of good faith-
 Contracts of Insurance
 Allotment of shares
 Contracts for sale of immovable property
2. Contracts of partnership
3. Contracts of guarantee
4. Contracts of parties having fiduciary relations
5. Change in facts before conclusion of the contract
6. In case of latent defect
Effects-1. Voidable Contract 2. Restitution 3. Insisting for performance 4. Claim for damages
Exceptions-

10
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

1. Availability of means for discovering the truth (Case-Shri Krishna v/s Kurukshetra
university 1976)
2. Ratification by the party
3. Lapse of reasonable time
4. Acquisition of right by the third party.
5. When original position cannot be restored.(Parties are entitled to compensation only )
Misrepresentation
Any innocent or unintentional false statement made by one party to the other during the course
of contract is called misrepresentation. The party making the statement honestly believes in it
to be true and is made in honest ignorance of its falsehood.
Essentials-
1. Misrepresentation must be a false statement but the person making it must honestly
believe in it to be true.
2. The misrepresentation must have been made with out any intention to deceive the other
party.
3. It must relate to the material facts of the contract.
4. Misrepresentation may be caused by representing half truths.
5. It must have been made before conclusion of the contract.
6. It must have been made for the purpose of inducing another party to make a contract.
Effects-1. Voidable Contract 2. Restitution 3. Insisting for performance
Mistake
Mistake is a misconception about something. When the consent of one or both the parties to a
contract is caused by misconception or misunderstanding, the contract is said to be induced by
mistake. Mistake may be classified as-
1. Mistake of law- Mistake as to law of the country does not allow the parties any relief
from the implications of the contract. The contract will have the same effect as if parties
had full knowledge of the law of the country. But ignorance of foreign law is excusable.
Contracts caused by mistake of foreign law are void.
2. Mistake of fact- where both the parties to an agreement are under a mistake as to a
matter of fact, essential to the agreement, they are said to be at a bilateral mistake. An
agreement caused by such a mistake is void.
CONSIDERATION
Consideration is the promise or performance that parties exchange with each other. It is the
price that one party to a contract pays for the promise or performance of the other party.
According to section 2(d) “when at the desire of the promisor, the promisee or any other person
has done or abstain from doing, or does or abstains from doing, or promise to do or to abstain

11
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

from doing something, such act or abstinence or promise is called a consideration for the
promise.
Essentials-
1. Consideration must be at the desire of the promisor.
2. It need not benefit the promisor himself.
3. It may be given by the promisee or any other person.
4. It may be some act or abstinence or promise
5. It may be for past, present or future.
6. Consideration need not be adequate.
7. It must be real.
8. It must not be unlawful
9. It must be certain
10. It should not be impossible.
Contracts without consideration- According to section 25 “ An agreement without
consideration is void subject to certain exceptions.” Following are the exceptional cases under
which agreement is valid and enforceable even without consideration-
1. Agreement due to natural love & affection
2. Promise to compensate voluntary services.
3. Promise to pay time barred debt.
4. Gift actually made.
5. Promise to charities
6. Contracts of agency
7. Contracts of gratuitous bailment
8. Remission (Acceptance of lesser sum or performance in satisfaction of a larger sum or
performance)
LEGALITY OF OBJECT AND CONSIDERATION
In an agreement both the object and consideration may be lawful or unlawful. Sometimes only
one of them is unlawful and the other is lawful. But section 10 requires that in a contract, both
must be lawful. Therefore, if both the object and consideration of an agreement is not lawful, it
is void. According to section 23, the consideration or the object of an agreement is unlawful in
the following cases-
1. If it is forbidden by law- where the object or consideration of an agreement is to do some
act, which is forbidden by law, the agreement is unlawful and void.
2. If it defeats the provisions of any law- An agreement may be of such a nature that if it is
permitted, would defeat the provisions of any law. The object or consideration of such an
agreement is unlawful and void.
3. If it is fraudulent- An agreement made with an intention to defraud others is void.

12
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

4. If it is involves in injury- If the consideration or the object of an agreement is to injure a

person or property of another, it is unlawful and therefore void.
5. If it is opposed to public policy- If the court regards an agreement as opposed to public
policy, the agreement is unlawful and consequently void. For example- agreements of
trading with enemy, agreements for improper promotion of litigation, agreements for
sale of public offices etc.
CERTAINITY OF MEANING
Any agreement can be enforced if its meaning is certain. The agreements, the meaning of
which is not capable of being made certain are also void. If the meaning of agreement can be
made certain from the facts and circumstances of the case, then it will be valid contract.
POSSIBILITY OF PERFORMANCE
There are two types of agreements which are impossible to be performed. Some are impossible
to be performed from the beginning, they are void from beginning. There are some other
agreements which are possible to be performed initially but later on become impossible due to
change in circumstances beyond control. Such agreements become void when their
performance becomes impossible. They are known as void subsequently.
AGREEMENTS DECLARED VOID
Following are the agreements which have expressly declared as void under the Indian contract
Act 1872-
1. Agreements by incompetent parties (Section 11)
2. Agreements made due to bilateral mistake (Section 20)
3. Agreements of which the consideration or object is unlawful (Section 23)
4. Agreements of which the consideration or object is unlawful in part and can not be
separated (Section 24)
5. Agreements made without consideration (Section 25)
6. Agreements in restraint of marriage- According to section 26, every agreement in
restraint of marriage of any person, other then minor, is void. So if a major agrees for
consideration for not to marry, the promise is not binding.
(Case- Raj Rani v/s Gulab rani 1942 AIR)
7. Agreements in restraint of trade- According to section 27 “Every agreement by which
anyone is restraint from exercising a lawful profession, trade or business of any kind, is
to that extent void.”
Exceptions-
 Sale of goodwill of business
 Restraint on continuing and outgoing partners
 Restraint in case of dissolution of firm
 Restraint by trade combinations
13
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

 Restraint in agency agreements

 Restraint in licensing agreements
 Restraint by service agreements
8. Agreements in restraints of legal proceedings- All agreements which interference with
the course of justice are unlawful and void as these are against public policy. Every
agreement by which any party is restricted from enforcing his rights by usual legal
proceedings is void to that extent.
9. Wager or wagering agreements- This is an agreement between two persons in which one
person agrees to pay a certain sum of money or money’s worth to another on the
happening or non happening of some specific future uncertain event.
Exceptions-
 Speculation
 Authorized lotteries
 Insurance contracts
 Literary competitions
 Chit-fund schemes
 Horse races
10. Agreements with uncertain meaning- Agreements, the meaning of which is not certain or
capable of being or made certain are void.
OTHER LEGAL FORMALITIES
Many laws of our country require that some formalities should be complied with for an
agreement to be enforceable. For example- Indian constitution requires that the contract with
the government must be in writing. The arbitration law requires agreements to be in writing.
Agreements of transfer of property must also be written, witnessed & registered.
SHORT NOTES-
1. Void agreements- void agreement does not create any obligation of the parties. All
agreements with incompetent persons and agreements caused by mistake as to the fact
are void. There are also certain agreements which have been expressly declared void
under this Act. Such agreements are void from beginning. (Void-ab-initio)
2. Void contracts- According to section 2(j) “A contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable.” When a contract is valid at the time
of its making but later on due to change in circumstances or in law, it becomes
unenforceable, it is a void contract.
3. Voidable contract- According to section 2(i) “An agreement which is enforceable by law
at the option of one party but not at the option of other party is a voidable contract.” In
other words a voidable contract is an agreement, which is voidable at the option of
aggrieved party.

14
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

QUASI CONTRACTS
A contract is the result of an agreement enforceable by law. But in some cases there is no offer,
no acceptance, no free consent(Consensus ad-idem) and no intention on the part of parties to
enter into a contract and still the law, from the conduct and relationship of parties, implies a
promise imposing obligation on the one party and conferring a right in favour of the other. In
other words under certain special circumstances obligations resembling those created by a
contract are imposed by law although the parties have never entered into a contract. Such
obligations imposed by law are referred to as ‘Quasi contracts’ or ‘constructive contracts’.
These are as follows-
1. Claim for necessaries supplied to a person incapable of contracting (Section 68)- If a
person, incapable of entering into contract or any one 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. It may be stated that although agreements by minors, idiots,
lunatics etc. are void ab-initio, but section 68 makes an exception to this rule by
providing that their estates are liable to reimburse the supplier who supplies them
necessaries of life.
2. Reimbursement of person paying money due by another, in payment of which he is
interested (Section 69)- A person who is interested in the payment of money which
another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by
the other.
3. Obligation of person enjoying benefit of non gratuitous act (Section 70)- where a person
lawfully does anything for another person, or delivers anything to him, not intending to
do so gratuitously, and such other person enjoys the benefit thereof, the later is bound to
make compensation to the former in respect of, or to restore, the things so done or
delivered. The things must have been done lawfully in good faith.
4. Responsibility of finder of goods (Section 71)- A person who finds goods belonging to
another and takes them into his custody, is subject to the same responsibility as a bailee.
Thus an agreement is also implied by law between the owner and finder of goods and the
later is deemed to be a bailee.
 Duties of finder of goods- He must try to find out the real owner of the goods and
must not appropriate the property to his own use. If the real owner is traced, he
must restore the goods to him on demand. If he does not take these measures, he
will be guilty of criminal mis-appropriation of the property under section 403 of
IPC. Further till the goods are in the possession of finder, he must take as much
care of goods as a man of ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quality and value.

15
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

 Rights of finder of goods- till the true owner are found, he can retain the
possession of the goods against everybody in the world. He is entitled to receive
from the true owner, all expenses incurred by him for preserving the goods or
finding the true owner. He has a lien on the goods for the money so spent. In other
words he can refuse to return the goods to the true owner until these moneys are
paid. He is not entitled to file a suit for the recovery of such sums. But he can file
a suit against the owner to recover any reward, which was offered by the owner
for the return of goods, provided he came to know of the offer of reward before
actually finding out the goods.
The finder of goods is entitled to sell the goods if the owner can not be found or if
he refuses to pay the lawful charges of the finder, when goods are of perishable
nature or when the lawful charges of the finder of goods amounts at least two third
of the value of goods. The true owner is entitled to get the balance of sale proceed
if there is surplus after meeting the lawful charges.
5. Liability of person to whom money is paid or things delivered by mistake (Section 72)-
A person to whom the money has been paid or anything delivered, by mistake or under
coercion, must repay or return it. Accordingly, if one party under a mistake pays money
to another party which is not due by contract or otherwise, that money must be repaid.
It is very important that this section does not cover a case where money has been paid in
payment of a natural obligation. Thus where one has paid up a time barred debt, he
cannot recover it. Similarly, the section does not apply when there is a deliberate
disregard of law that means where moneys are paid voluntarily knowing fully well that
the contract has become void, it cannot be recovered under this section.
A quasi contract rests upon the equitable doctrine on unjust enrichment which declares
that a person shall not be allowed to enrich himself unjustly at the expense of another.
Duty and not a promise or agreement, is the basis of such contracts. It is also important
that a suit for damages for the breach of the contract can be filed in the case of a quasi
contract in the same way as in the case of completed contracts. (Section 73)
Contingent contract
A contingent contract is a conditional contract and the condition is of an uncertain nature.
Therefore, a contingent contract is a contract in which the promisor undertakes to perform the
contract upon the happening or non-happening of a specified future uncertain event, which is
collateral to the contract. According to section 31 “A contingent contract is a contract to do or
not to do something, if some event, collateral to such contract, does or does not happen”.
Characteristics/Essentials of contingent contract-
1. The performance depends upon contingency
2. The uncertain event
3. Collateral event

16
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

4. Event must not merely be the mode of performance

5. The event should not be the mere will of the promisor
6. All essentials of contract
Differences between contingent contract and wagering agreements-
1. A contingent contract is a contract in which the promisor undertakes to perform the
contract upon the happening or non-happening of the event, which is collateral to the
contract. A wagering agreement is one in which one person agrees to pay certain amount
of money to the other on happening or non-happening of a specified event.
2. The parties are interested in the subject matter of contingent contracts, so the happening
or non-happening of the event is material for them but parties to wagering agreement
have no other interest in the subject matter of the agreement except the winning or losing
the money.
3. A contingent contract is a valid contract but A wagering agreement is void agreement.
4. All contingent contracts are not wagering agreements because all contingent contracts
are not void but all wagering agreements are contingent agreements because their
performance is depending upon uncertain future events.
PERFORMANCE OF CONTRACT
Performance of a contract means performing all the promises and fulfilling all the obligations
required by the contract.
Types/Modes of performance-
1. Actual performance- Actual performance takes place when both the parties to a contract
perform their respective promise and nothing remains to be performed in future by them.
2. Offer/Tender of performance- Another way of performing a contract is to make offer of
performance to the promisee. When a party offers performance of his obligation to the
other party, it is called a tender of performance. If the promisee does not accept or fails
to accept the tender, the promisor is not responsible for the non-performance of the
promise and promisor stands discharge from his liabilities.
Types of offer/tender-
 Tender of money
 Tender of goods
Essentials of a valid tender-
1. Unconditional
2. For whole obligation
3. Reasonable opportunity for inspection
4. By an able and willing person
5. In legal tender money
6. At proper time
7. At proper place
17
 DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

8. To a proper person
9. In proper form
When performance not required-
1. When performance becomes impossible
2. When parties substitute a new contract
3. When contract is rescinded (voidable contract)
4. When promisee rejects the tender of performance
5. When promisee refuses to provide reasonable facilities
6. When it is unlawful
DISCHARGE OF CONTRACT
A contract is discharged when parties to a contract no longer have any obligation under the
contract. A contract is said to be discharged when both the parties to a contract either perform
or extinguish their respective obligations under the contract, consequently the contractual
relations between the parties to a contract come to an end.
Modes/Methods of discharge of contract
1. Discharge by performance
2. Discharge by agreement/mutual agreement- As the contract is created by an
agreement between parties; the parties may also terminate or discharge the contract by a
fresh agreement by mutual consent. Various modes of discharge of an existing contract
by a fresh agreement are as under (section 62and 63)-
 Novation- Novation means substitution of a new contract in place of an existing
one with the consent of all the parties to the contract. When a new contract comes
into existence, the existing contract stands discharged.
 Alteration- Alteration means change in one or more terms of a contract with the
consent of all the parties to it. A valid alteration discharges the original contract
and contract with new terms comes into effect. In case of novation, sometimes
parties also change but in case of alteration the parties remain the same.
 Rescission- Rescission of contract means cancellation of a contract by the consent
of all the parties to it. A rescission of contract may take place by mutual
agreement, by failure to perform obligation or by aggrieved party.
 Remission- Remission means acceptance of a lesser sum or performance in
discharge of a whole obligation under a contract.
 Waiver- when a party entitled to claim performance releases the other party from
his obligation to perform it, it is called waiver. This may be an excuse by a party
to another party’s non performance of a contract.
 Merger-Merger means merger of two or more rights into one contract. When an
existing inferior right of party merges into a newly acquired superior right by the
same party. In such a case the inferior right automatically stands discharged.
18
DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

3. Discharge by lapse of time- when a contract is to be performed with in a stipulated time

period and a party does not perform it within that time, the contract is discharged by
lapse of time period fixed for its performance.
4. Discharge by operation of law-
 Death- sometimes a contract is of a personal nature and involves personal skill of
promisor. In such cases the contract is discharged on the death of promisor.
 Insolvency- When a person is declared insolvent, he is released from all his all
liabilities incurred prior to the order of declaration.
 Material alteration- sometimes a party to a contract makes material alteration in
the written document of contract without the consent of the other party. In such a
case contract becomes void and stands discharged.
 Rights & liabilities becoming vested in same person- If the same person becomes
liable to himself or he acquires rights against himself, in such a case, the contract
in effect is discharged.
 Loss of evidence of contract- Where the evidence of the existence of the contract
is lost, the contract is discharged.
5. Discharge by impossibility of performance-
 Initial impossibility- It means the impossibility which existed at the time of
making the agreement. Such impossibility is only physical impossibility but not a
legal impossibility so the agreement to do impossible act is void.
 Subsequent impossibility- subsequent impossibility is one which arises after
formation of a contract. Sometimes the performance of a contract is possible when
the contract is made but subsequently becomes impossible or unlawful. It is said to
be subsequent/post contractual/supervening impossibility of performance. The
contract becomes void when the act becomes impossible or unlawful.
6. Discharge by breach of contract- Breach of contract means refusal or failure of any
one party to perform his contractual obligations under the contract.
 Actual breach of contract- Actual breach of contract takes place when a party to a
contract refuses or fails to perform his obligation when it is due. This also may
take place in two ways- on the due date of performance & during the course of
performance.
 Anticipatory breach of contract- Anticipatory/constructive breach of contract
occurs when a party to a contract disables himself from performing or refuses to
perform the contract before the time or date of the performance. It is a declaration
by one party to a contract of his intention of not performing the contract prior to
the date of performance. This may also take place in two ways- Express breach by
written or spoken words & Implied breach of contract by the act or conduct or
abstinence of a party which make the performance of a promise impossible.
19
DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

REMEDIES FOR BREACH OF CONTRACT

1. Recession of contract- when promisor makes a breach of contract, the
promisee/aggrieved party may rescind the contract. Consequently, aggrieved party is
discharged from all obligations under the contract. He is also entitled to claim
compensation for damage caused to him due to the non performance of the contract.
Court may refuse recession in following circumstances-
 Where the party entitled to recession has ratified the contract.
 Where the parties can not be restored at their original position.
 Where third parties have, during the subsistence of contract, acquired the rights in
good faith.
2. Suit for damages- Damages are monetary compensation payable to the injured party, by
the party at default for the loss suffered by him due to the breach of contract. The
amount of damage is decided by the court. The prime objective of awarding damages for
breach of contract is not to punish the party at default but to compensate the injured
party for the monetary loss naturally suffered by him due to the breach of contract .
Where monetary compensation is not an adequate remedy for breach of contract or the
losses are too remote to be awarded, are some of the cases, where damages are not
awarded by the court. According to section 73 aggrieved party is entitled to the
following-
 Natural/ordinary damages- Aggrieved can claim the damages which naturally
arose in the usual course of things from such breach. the loss must be the
proximate or direct consequence of the breach of contract.
 Special damages- The injured party is entitled to claim special damages which
arise due to special or unusual circumstances, if the special circumstances were
brought to the knowledge of the party at default at the time of making the
contract.
3. Suit for Quantum Meriut- The phrase “Quantum Meriut” means as much as is earned.
This phrase is applied as a doctrine to the law of contracts which implies that a party is
entitled to claim payment as much as an amount he has earned. It rests on the principle
of equity that nobody shall be allowed to enrich himself unjustly at the expense of
another. The right of remedy to quantum meriut is available under any of the two
circumstances-
 When a contract is discharged by breach during the course of its performance.
 When a party does something for another not intending to do gratuitously and the
other party enjoy the benefit of act.
4. Suit for specific performance- specific performance means the performance of contract
as per the terms of the contract. The aggrieved party can file a suit against the party

20
DR. KAPIL KHATTER M-98280-44221
MBA(HR), LL.M., M.Com.(ABST&B.Adm.), Ph.D

liable for performance of contract under certain circumstances. The court may enforce
the specific performance of a contract in following cases-
 Where there exists no standard for measuring the actual damage caused by the non
performance of the act agreed to be done.
 When the act agreed to be done is such that monetary compensation for non
performance would not afford adequate relief.
A party seeking specific performance of a contract must have performed all the terms
of the contract at the time of bringing the action for specific performance.
5. Suit for Injunction- An injunction is an order of a court prohibiting a party to a contract
from doing a particular thing or from doing something against the terms of contract.
When a party makes a breach of contract, the injured party can, under certain
circumstances, apply to court for issuing of an injunction. The power of the court to
grant injunction is discretionary.

21