INDIAN CONTRACT ACT OF 1872

1
Bharath R’s Self Service
Store….
• Bharath R started “self service” system in his
shop.
• Mr. Prakash entered the shop, took a basket and
after taking articles of her choice into the basket
reached the cashier for payments.
• The cashier refuses to accept the price.
• Can Bharat R be compelled to sell the said
articles to Mr. Prakash?
• Decide.
2
Pruthvi Raj’s 8.5 GPA
• Pruthvi Raj’s Father promised to pay him a sum
of Rs. 1 lakh if he passed B.Com with 8.5 GPA in
the first attempt.
• Pruthvi passed the examination with 8.5 GPA in
the first attempt, but father failed to pay the
amount as promised.
• Pruthvi filed a suit for recovery of the amount.
• State along with reasons whether he can recover
the amount under the Indian Contract Act, 1872.
3
Rishi Bhagia’s Loan
• Rishi, when a minor, was studying in a school. On 1st July,
2005 he took a loan of Rs.10,000 from his Uncle for payment
of his school fees and to purchase books and agreed to repay
by 31st December, 2020.
• Rishi possesses assets worth Rs. 2 lakhs. On due date when
Rishi fails to pay back the loan to Uncle, he now wants to
recover the loan from out of his assets.
• Referring to the provisions of the Indian Contract Act, 1872
decide whether Uncle would succeed.

4
Udaysai Shanmukha vs.
Yukesh
• Uday induced Yukesh to buy his motorcycle saying that it was
in a very good condition.
• After taking the motorcycle, Yukesh complained that there
were many defects in the motorcycle.
• Uday proposed to get it repaired and promised to pay 40%
• cost of repairs.
• Even after repairs, after a few days, the motorcycle did not
work at all.
• Now Yukesh wants to rescind the contract.
• Decide giving reasons.
5
Midhun Kumar vs.
Sai Prashanth
• Midhun entered into an agreement with Sai Prashanth to
deliver him 5,000 bags of Cotton Fiber to be manufactured in
his factory.
• The bags could not be manufactured because of strike by the
workers and Midhun failed to supply the said bags.
• Sai Sues Midhun for loss
• Decide whether Midhun can be exempted from liability under
the provisions of the Indian Contract Act, 1872 because of
Strike?

6
Prakarsh Anand vs.
Priyesh Pawar
• Prakash placed an order with Priyesh for supply of Urad Dhall
on 10.11.2006 at a contracted price of Rs.40 per kg.
• The order was for the supply of 10 tonnes within a month's
time viz. before 09.12.2006.
• On 04.12.2006 Priyesh wrote a letter to Prakash stating that
the price of Urad Dhall was sky rocketing to Rs.50 per. kg. and
he would not be able to supply as per original contract.
• Prakash insisted on supply as per the contract
• The price of Urad Dhall rose to Rs.53 on 09.12.06
• Comment on Prakash’s the legal position.
7
Quantum Meruit?
• Naman hired Vijay Sai to repair his wood deck, accepting his bid of
Rs. 3,000, and giving him a down payment of Rs. 1,500.
• When Vijay is about three-fourths finished, another contractor
discovers damage to the house where the deck is connected, and
advises that the repairs will require removal of the deck.
• Naman immediately tells Vijay to stop his work, and says he will let
him know when they can continue.
• When Vijay didn’t hear anything from Naman till a month later, he
called and was told he had decided not to finish the deck.
• Vijay sent a bill, specifying the number of hours he had already put
into the job, and asking for payment of Rs. 700 in addition to the
down payment already received.
• Naman becomes angry and refuses to pay even a dime more. 8
• Matter in the Court.
Duped!
• Akhil Sharma examines and buys a painting from Sai Vignesh
believing it to be worth Rs.1,00,000 while in fact it is worth
only Rs.10,000.
• He goes to Vignesh a month later and wants to get his money
back.
• Did Akhil enter into a valid contract?
• Will he Succeed?
• See sec. 20 of ICA

9
Misrepresented!
• A woman by falsely misrepresenting her to be Neeta Ambani,
obtained two pearl necklaces from a firm of jewellers owned
by Saketh on the pretext of showing them to Mukesh before
buying.
• She immediately pledged them with a pawn broker, who in
good faith paid her Rs.1,00,000.
• A suit was filed by Saket against the broker to recover the
necklaces.
• Discuss the legal position of Saketh.

10
Misrepresentation/ Section 22
• The Grand Uncle of Sai Prem, an old illiterate man, was
induced to sign a Bill of Exchange by means of a false
representation that it was a mere guarantee, by a village Man
• He is now threatening his G. Uncle.
• Prem goes to meet his G. Uncle discuss the legal position.

11
Poor Sailing
• Srivats Aiyer, a ship owner, contracts with Sai Krishna to
convey him from Kolkata to Sydney in his ship, sailing on the
1st of January 2021 and Krishna pays to Srivats, by way of
deposit, one-half of his passage-money.
• The ship obviously does not sail on the first of January due to
development of a snag in its engine, and Krishna, after being
in consequence, detained in Kolkata, for some time, and
thereby put to some expense, proceeds to Sydney in another
vessel
• As a consequence, arriving too late in Sydney, Krishna loses a
huge sum of money and files a suit to recover it all
• What Is Srivats liable to pay, if anything to Krishna? 12
Author X Claims
• Pardha Sai contracted with Author X to write a book in 12
volumes for Rs.1,00,000 payable on the completion of the
whole work.
a) After completion and delivery of six volumes, Author X
abandoned the publication as he was moving to USA
b) If after completion and delivery of six volumes, Author X died.

13
CONTENTS

❑ Introduction of Law of Contracts

❑ Nature of contract
❑ Offer and Acceptance
❑ Consideration
❑ Capacity to contract
❑ Free consent
❑ Legality of Object
❑ Contingent Contracts
❑ Performance, Discharge of contract.
14
 Indian Contract Act, 1872
Law of Contracts is the most important branch of
mercantile law.
Contract:
Section 2 (h) : “ Every agreement and promise
enforceable at law is a contract.”
15
Que: Contract = Agreement + Enforceability at law
Sai Phani

Agreement :
Section 2(e) : “every promise and every set of
promise forming consideration for each
other is an agreement.”

Agreement = Offer + Acceptance

Que : Phani are Contracts made over Telephonic 16
conversation?
 Case in point :

Balfour vs Balfour (1919)

17
 Sai Krishna
Balfour v Balfour [1919]
• Balfour v Balfour [1919] 2 KB 571, CA
• A civil servant D was about to return to his work in Ceylon,
leaving his wife P in England. D promised to pay P £30 a
month until he returned, in exchange for her agreement to
support herself without calling on him for any other
maintenance.
• They subsequently divorced, and P sought to enforce D's
promise. The Court of Appeal said that although there was
consideration in P's promise, there was no contract. There
are many agreements, said Atkin LJ, including most
agreements between husband and wife, which the parties
never intended they might be sued upon.
Que: Are Agreements such as these are outside the realm of
contracts?
CLASSIFICATION OF CONTRACTSSreekar Babu

On the basis of enforceability

• Valid Contracts
• Void Contracts
• Voidable Contracts
• Illegal Contracts

Sreekar, you signed a contract, duly registered, that you will give 50% of
your future wealth to charity, while you were made to believe it was only
5%. Is the contract void or voidable?
19
Void Contracts Section 2(g)
Section 24-30 of the act mentions about the agreements that are
considered void.

• Section 24- agreements are considered as void if considerations and

objects are unlawful.
• Section 25- agreement without consideration is held as void unless
the agreement is in writing and registered or is a promise to
compensate for something done or is a promise to pay debt which
is barred by limitation law.
• Section 26- agreement which is made in restraint of marriage is
held as void.
• Section 27- agreements which are in restraint of trade are held as
void.
• Section 28- agreement which is in restraint of legal proceedings is
void.
• Section 29- uncertain agreements are held as void. 20
• Section 30- agreement by way of wager is held as void.
ESSENTIAL ELEMENTS OF A CONTRACT

SECTION 10

1. Offer and Acceptance

2. Legal Relationship
3. Lawful Consideration
4. Competency to contract
5. Consent between the parties
6. Legality of Objects
7. Certainty of Objects
8. Possibility of Performance/
Discharge of Contract
9. Legal formalities
21
OFFER AND ACCEPTANCE
RULES OF OFFER
SECTION 2 ( a)

• Must be clear, definite , complete and final. It must not be

vague . Eg. A monetary dealing
• Must be communicated to the offeree. An opportunity of
making him accept or reject must be given.
• May be by express words oral or written. Or implied by
conduct. Eg : Offer for sale of car, a chartered bus for
passengers.
• May be general or specific. Eg : IPO to General Public,
Specific tender bids. 22

• *It Must be distinguished from :Invitation to make an offer . eg auction.

 Sai Yukesh

Case :
Lalman Shukla Vs Gauri Dutt
Facts of the case:
• Gauri Dutt’ s son was lost
• A prize was announced to find him
• Lalman shukla, a servant was sent to trace
the child
• He traced, unaware of the award announced
and claimed it later 23
• Que: Should Gauri Dutt Pay ?
 SaiYukesh

ACCEPTANCE

Rules of Acceptance
• -May be expressed by words written or spoken or implied
from the conduct.
• -Must be in the mode prescribed . eg : fax, e- mail.
• -Must be unqualified and absolute
• -Must be communicated to the Offeror
• -Must be made within a reasonable time and before the
offer lapsed is revoked.
24
Que: Can Mere silence amount to acceptance?
SILENCE AS ACCEPTANCE
• If the offeree gives the offeror the impression that silence will
be considered an acceptance
• Where the offeror has told the offeree that silence will
constitute acceptance
• Where an offeree improperly exercised dominion over goods
sent to him for approval or inspection. In such an instance, the
offeree is contractually bound to buy the goods at the stated
price even if he never had any intention of buying them in the
first place
Sai Santhosh makes an offer to SaiAditya and the Aditya
accepts after 3 years. Is that acceptance a valid acceptance?
25
 Sai Prem

Case in point :
Carlill
vs.
Carbolic Smoke Ball Co.( 1893)
Facts:

• CSB came with an add to reward 100pounds to

anyone contracting influenza after using the
smoke balls.
26
Que: If Mrs. Carlill contracts influenza, can she
files a suit and win the prize money?
 Carlill v Carbolic Smoke Ball Co [1893]

Carlill v Carbolic Smoke Ball Co [1893] 1 QB

256, CA
• The makers of a health product published newspaper
advertisements promising to pay £100 to anyone who
contracted flu after buying one of their smoke balls
and using it as directed. The advertisement also said
DD had deposited £1000 in a named bank to show
their sincerity in this matter. P bought a smoke ball,
used it as directed, and still caught flu; she sued for the
£100 promised. The Court of Appeal said the
advertisement in this case was an offer; the wording
of the advertisement clearly showed an intention to
be bound to anyone accepting.
Karan Singh vs The Collector, Chhatarpur And ... on
17 October, 1979
Arvind made a sealed bid for a mining site in
one of the blocks offered by the Government of
Chattisgarh. After bids opening date, the
Government represented by Saketh advertised
the list of selected bidders for various Blocks and
asked them to send acceptance by a certain
date, else their earnest money will be forfeited.
Que: Saketh , If Arvind did not see the
advertisement and lost his earnest money, can
He file a Suit for recovery against you?
Saketh Gorthi
Vaibhav Kavugoli

2. Legal Relationship:
• Intention among the parties that the agreement
should be attached by legal consequences and create
legal obligations.
• Intentions of both the parties are taken into
consideration.

Que: What about Collective Agreements? Negotiable Instruments? 29

Letter of Credit?
 vijay sai

3.Lawful Consideration
• Section 2 (d) : “ When at the desire of the
promisor , promisee or any other person has done
or abstained from doing or promises to do
abstain from doing such act or abstinence is
called a consideration for the promise.”
• Consideration is at the desire of the promisor
Que: Vijay sai , Can Consideration move from any 30
other person apart from Promisee?
Rules

-Every contract must be supported by

consideration
-May be an act of abstinence or promise.
- There must be mutuality
-Must be REAL and not vague.
-Must be full return for the promise.
-Must NOT be something person is bound to
perform for the promise. 31
Consideration
• Is defined under Section 2d of the Indian Contracts Act, 1872
as when the promisee at the request to the promisor has:

• Done or abstained from doing something

• Does or abstains from doing something
• Promises to do or abstain from something

Sathyanarayana finds out that Satyasunder Mahapatra’s

nephew had cheated him in the past to the extent of Rs.
10,000. He offers to not sue him if the amount is paid back
with 16% interest by Sathyasunder . He agrees. Is it a valid
agreement? 32
When not necessary

• -Made out of natural love and affection

• -Done as voluntary act
Guna Sai: It is said you have a moral, but not a 33
legal obligation to pay a time barred debt
• COMPETENCY TO CONTRACT
• Section 11:
• Following are the qualifications for a party to
contract:
• *Must be a Major
• *Must be of Sound Mind
• *Must not be disqualified by law from
contracting to which they are subject
34
Sathyanarayana

Section 12

• “Que: Sathya, Can a Person Of

Unsound Mind Contract At Intervals
When He Is Of Sound Mind?

35
Pardha Sai

Minors

*Minors agreement is void-ab-initio.

*Can be a beneficiary or a Promisee.
*No compensation awarded under the agreement.
*No specific performance allowed.

Que: Pardha Sai, Can a Minor ratify a contract on

attaining Majority?
36
 MANIYAN NADAR v. SYAMALA
THIRUVANANTHAPURAM

M, a minor, when aged 15 had executed a

transfer deed in favour of his Guardian Sai
Phani in the presence of his sister N aged
19 and acknowledged the same in the Trial
court at that time.
Now a major, he files a suit for recovery of
property. The matter is now pending in AP
High Court.
Sai Phani : What are your chances?
37
Legal Concepts Under Minors :

• Restitution – If a beneficiary
to restore the status quo ante

• Estoppel – Prevention of sale of goods

Estoppel prevents someone from arguing something or asserting
a right that contradicts what they previously said or agreed to law

MADHAV: a minor misrepresented his age has induced the other party
to enter into a contract with him and agrees to it. Can he be made liable
for the contract using Pr. of Estoppel?

38
 CASE:
MOHIRIBIBI
VS
DHARMODAS GHOSH

39
Arvind Iyer
MOHIRIBIBI VS DHARMODAS GHOSH

• The plaintiff, Dharmodas Ghose, while he was a

minor, mortgaged his property in favor of the
defendant, Brahmo Dutt, who was a money lender
to secure a loan of Rs. 20,000.
• At the time of transaction, the attorney of the
defendant was fully aware that the plaintiff was
incompetent to contract.
• Dharmodas paid only Rs. 8000 and refused to
return rest of the money stating that at the time of
contract he was a minor, so the contract is void and
he is not bound to return the money.

40
II. PERSONS OF UNSOUND
MIND ARE CAPABLE OF
CONTRACTING WHEN
THEY BECOME SOUND.

III. DISQUALIFIED PERSONS.

• Convicts
• Alien enemy
• Company / Statutory bodies
beyond its MOU
• Foreign Nationals

41
 Void and Voidable Contracts

• A voidable contract, unlike a

void contract, is a valid
contract which may be either
affirmed or rejected at the
option of one of the parties.
• Typical grounds for a contract
being voidable include
coercion, undue influence,
misrepresentation or fraud.

42
COERCION [Section 15]
(a) Committing any act which is forbidden by the IPC
(b) Threatening to commit any act which is forbidden by the IPC.
(c) Unlawful detaining of any property or
(d) Threatening to detain any property.
Main Components:
• There must be a Contract made .
• Contract must be made to under threat.
• Can be rescinded because it is executed under threat.
Eg : Agreement under a Gun Point.
Note: A threat to file a suit/case (civil or criminal) does not
amount to coercion unless the suit is on false charge. 43
National Insurance Co. Ltd vs M/S. Boghara
Polyfab Pvt. Ltd
18 September, 2008

S, looking for a home booked a flat with K

construction Company. Before handing over S
found the house is only 909 Sq.ft and not
1080Sq.ft as promised.
K tells S, “Sign the letter of possession else we will
cancel your booking.”
S takes possession but files case for recovery of
inadequacies.
K sends notice of cancellation and eviction and
rebooks flat in another name
44
45
UNDUE INFLUENCE (Sec 16):
“Relations between the parties are
such that one of the parties is in a
position to dominate the other and
uses that position to obtain unfair
advantage over the other.”
Eg
Real/Apparent Authority: Master and
servant, parent and child, Income Tax
officer and assesses, Principal and a
Temporary Teacher, etc.
In a Trust fiduciary (benefit) relation to
the other: Trustee and beneficiary, Spiritual
Guru and his Disciples, Solicitors and
Clients, Guardian and wards
Mental or bodily distress: Medical
attendant and ward. 46
 UNDUE INFLUENCE ?

Example :
• A applies to a banker for a loan at a time when there is
stringency in the money market. The banker declines to make
the loan except at an unusually high rate of interest. A accepts
the loan on these terms.
Example :
• A spiritual guru induced his chela to donate all his property to
the ashram and said that in return of it, he will certainly get
salvation. The chela did the same but later wanted to rescind
the contract on the basis of Sec 16.

47
 FRAUD (Sec 17):
Any act committed by a party to a contract or with
his connivance or by his agent With Intent to
Deceive another party there to or his agent or to
induce to enter into contract.
Essentials of fraud :-
(a) By a party to the contract
(b) There must be representation – [an opinion a statement of expression –
does not fraud].
(c) The representation must be false.
(d) Before conclusion of contract.
(e) The misrepresentation must be made willfully.
(f) The misrepresentation must be made with a view to deceive the other
party.
(g) The other party must have actually been deceived.
(h) The other party have suffered a loss.
48
 Examples
• Ex. A furniture dealer very smartly conceals the cracks in
furniture by polish work!
• Ex:- T bought a cannon from H. It was defective, but H had
plugged it. T did not examine the cannon and it burst when he
used it. T returns and demands back his money.
• Ex.: A representation was true but becomes untrue before the
contract is entered into and this fact is known to the party who
made the representation. Will it amount to fraud?
Note: Mere (only) Silence as to facts likely to affect the
willingness of a person to enter into a contract is NOT fraud.
Ex. B says to A “ if you do not deny it I shall assume that the
horse is sound”. A say nothing. Is A’s silence equivalent to
speech and hence can A be held liable to fraud?
49
Misrepresentation is when a party
(person) asserts something which is not
true though he believes is to be true.
MISREPRESENTATION (Sec 18) :
Is unintentional and has the following features:
• A representation or assertion
• Such assertion induced the party to act
• Statement was made with a honest belief (innocently) but turned
to be untrue
• Assertion related to a matter of fact
Cannot Rescind contract if:-
• Truth could have been discovered with ordinary diligence.
• Give consent in ignorance of misrepresentation
• Become aware of misrepresentation & takes a benefit
• Where the parties can’t be restored to their original position.
50
CASE IN POINT:

Car & Universal Finance Company Ltd -v-

Caldwell
D sold a car, receiving the payment by
cheque which was later dishonoured; P
meanwhile bought the car in good faith.
Held: The contract was voidable at the
choice of the D

51
Budh Ram And Others vs State Of Haryana
And Others
22 May, 2009

M, working with Government of Haryana

was conferred ineligible benefits. L,
representing Haryana Government, wants
these reversed immediately with interest. M
has already spent the benefits on a vacation
with family and refuses. The case is before
Chandigarh and Haryana High Court.

Kodam Akhil

52
Please Remember
Means of discovering of truth
• In case of fraud the contract is voidable
even though the aggrieved party had the
means of discovering the truth with
ordinary diligence.
• In case of misrepresentation the contract
is not voidable if the aggrieved party had
the means of discovering the truth with
ordinary diligence….
53
Mistake :
• Mistake implies an erroneous belief.
Types:
• Mistake of Law
• Mistake of Fact

Mistake of Law can be of two types:

a) Mistake of law of the country is based on the
maxim “ ignorance of law” is no excuse: Valid
b) Mistake of foreign law is based on premise of
bilateral mistake of fact –Void.
54
Mistake of Fact is of two types:

– Bilateral Mistake caused by both the parties

– Unilateral Mistake caused by one of the

contracting parties.

55
 Bank of Baroda vs Ganpatbhai
Tribhovandas on 12 June, 2013

A had applied for the post of Probationary Officer

to Canara bank. He was shortlisted and to submit
all certificates. Thereafter A was intimated that he
has been selected.
Later, S, the Chief Selection officer found that A
name was fraudulently included in the list of
shortlisted candidates by one of the employees
and hence cancelled. A is the plaintiff and S
represents Canara Bank who is the defendant.
Nikhilesh Pandey
56
 Judgement Excerpt

• Merely inclusion of the plaintiff in the

select list does not create any right of
being appointed.
• As an employer came to know that the
selection is improper and therefore, it was
well within its right to cancel the select list
and as no right accrued in favour of the
plaintiff merely by inclusion in the select
list
• Hearing was not necessary at all.
57
LEGALITY OF OBJECTS
(Sec 23)

Every agreement of which object is unlawful is

forbidden by law.
Could be either when :
-Forbidden under any Statutes
-Implies Injury to any person / Property
-Court Regards it immoral or opposed to Public Policy
. 58
AGREEMENTS OPPOSED TO PUBLIC
POLICY ARE :
• -Related to trading with enemy
• -Commit crime
• -Interference with administration of justice
• -Related to restraint of legal proceedings.
• -Related to sale of public offices.
• -Restraint of parental rights.
• -Restricting personal liberty
• -Restraint of marriage (Lowe vs peers)
• -Marriage brokerage agreements.
• -Interfering with marital duties .
• -Restraint of revenue authorities.
• -Restraint of trade (S.B. Fraser & Co. Vs Bombay
Ice Mfg. Co.)
59
DISCHARGE OF CONTRACT /
PERFORMANCE OF CONTRACT

A CONTRACT IS TERMINATED OR
DISCHARGED BY:

1. -Performance (fulfillment of duties)

2. -Mutual consent or agreement
3. -Lapse of time
4. -Operation of law
5. -Impossibility of performance
6. -Destruction of Property
(Perishable Goods e.g.)
7. -Through a breach of contract
8. - By material alteration

60
PERFORMANCE OF CONTRACT
RULES OF PERFORMANCE:
• Contract to be performed by the promisor, in case
of death by the legal heir or representatives.
• A stranger to a contract cannot sue for
performance. Must be demanded by the party to
whom the promise is made.
• When the promisee has refused to perform his
side of promise, it can be put to an end by the
promisor.(Artist performance).
• Must be performed by the promisor/ promisee (in
case of artist)
• Devolution of joint rights BHARATH 61
EG
1. A promises to supply 100 kgs of raw
material to B . However A dies before
completion. Can Legal Heirs of A
complete the contract?

2. A promises to paint a picture for B.

But A dies before execution. Should
Legal Heirs of A cannot arrange or
paint the picture?

62
DISCHARGE BY MUTUAL AGREEMENT
COULD BE :

-Through novation: substitution of a new contract

-Alteration
-Rescission :discharge at any other time before end
@ misrepresentation, mistake, coercion etc.
-Remission acceptance of a lesser sum
-Waiver : abandon

DISCHARGE BY LAPSE OF TIME

-Time barred debt to be accounted

63
DISCHARGE BY OPERATION OF LAW
-By Merger
-By unauthorized alteration of items of a
written document
-By insolvency
-By death

64
DISCHARGE BY IMPOSSIBILTY

-Could be at the time of contract ( eg : act of

magic)
-Or supervening impossibility ( eg : singer falls ill)

Exceptions :

-Difficulty of performance
-Commercial impossibility (higher profits not
realized?)
– Strikes, lockouts

65
Supervening impossibility

Contract which becomes impossible

subsequent to the formation is called
supervening impossibility. For the doctrine to
apply the following should be fulfilled :
– Act should have become impossible
– Act was such that the promisor could not prevent
– Impossibility was not self induced by the promisor
/ promisee.

66
 Pallava Granite Industries India ... vs Andhra
Pradesh Mineral ... on 10 May, 2005

• K paid the earnest and won a tender from AP

government to lift granite blocks from a particular mine.
He deposited the bid amount late by 10 days which was
accepted by S who represent Government of AP.
• Now K came to know that a ‘status quo’ order has been
passed by AP Court on the mine. As transport permit
was not issued by K, he could not transport the granite
and his Earnest was forfeited.
• He files a suit of recovery and damages.

SAI VIGNESH S
PRIYESH PAWAR
67
DISCHARGE BY BREACH

COULD BE :
ACTUAL OR ANTICIPATORY

Anticipatory Breach of Contract occurs before the

contract can be executed
whereas , actual breach of Contract occurs at or
during the performance of Contract.

Case in point :
HOCESTER
VS
DE LA TOUR
68
 HOCESTER VS DE LA TOUR

• Brief Fact Summary. Plaintiff, a carrier, entered into a contract with

Defendant to accompany Defendant on a trip that would begin June
1. Defendant changed his mind before June 1, and refused to
compensate.

Synopsis of Rule of Law. If two parties enter into a contract to be

performed at a designated time in the future, and one party refuses
to perform the contract before the designated time the parties
agreed to perform, the other party may sue before the contract was
to be performed. That party need not wait until the time for
performance has passed.

• Issue. Was the lower court correct to find for the Plaintiff even
thought the time that the contract was to be performed had not
come?

69
REMEDIES FOR BREACH:

• RESCIND THE CONTRACT

• SUIT FOR DAMAGES
• SUIT FOR SPECIFIC PERFORMANCE
• SUIT FOR INJUNCTION
• SUIT FOR QUANTUM MERUIT

CHINTALA SANTOSH
70
RESCIND THE CONTRACT

• WHEN THERE IS BREACH OF CONTRACT BY

ONE PARTY , THE AGGREIVED PARTY MAY
RESCIND THE CONTRACT. WHEN RECISSION
IS GRANTED THE OTHER PARTY IS
ABSOLVED OF ALL THE OBLIGATIONS OF
THE CONTRACT.
71
SUIT FOR DAMAGES
• THE PRINCIPLE FOR CLAIM SAYS:

• DAMAGES FOR BREACH ARE

INTENDED TO COMPENSATE THE
AGGREIVED PARTY AND NOT PUNISH
THE GUILTY OF BREACH

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Underlying principle: Damages to be made good
by the party who has broken the contract.
Case in point :

HADLEY
VS
BAXENDALE
-Hadley sent a broken mill shaft to the repairman through
a courier Baxendale.
-

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 Hadley v Baxendale
• PP were a firm of millers who contracted with carriers DD to
take a broken mill-shaft to a foundry for repair. The shaft was
delayed in transit through DD's negligence and the mill lost
five days' production.
• PP claimed damages for their lost profits. Alderson B said in
the Court of Exchequer that the damages allowable were such
as may fairly and reasonably be considered to arise naturally
(i.e. in the ordinary course of things) from the breach of
contract, or such as might reasonably be supposed to have
been in the contemplation of both parties at the time of the
contract as a probable result of the breach.
AKHIL SHARMA: YOUR JUDGEMENT
• In this case, the total stoppage of production was not a
natural consequence of delay - the mill might well have had a
spare shaft in stock - and the carriers had not been aware of
the special circumstances, so that in this respect the claim
failed.
 SPECIFIC PERFORMANCE :

The principle states where damages are not adequate

remedy to measure the loss, the court may on a petition
filed by aggrieved party direct the party to perform his
part of promise.
IS NOT ORDERED WHERE:

• Monetary Compensation Is Enough

• Contract Not Certain
• Is Of Personal Nature
• Made By Company In Excess Of Powers
• Requires Continuous Supervision Of The Court.

75
 Situation of specific performance.

A written agreement to purchase a person's house

at a specific price and on exact terms. If the seller
refuses to sell, regardless of the reason, you may
be able to bring a lawsuit to force him or her to
sell at the agreed-upon price because same
property may not exist.

• Personal Talent.

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 INJUNCTION:

An order of a person restraining him from

doing a particular act.
It could be prohibitory or mandatory. Is
a mode of securing specific performance
of negative terms of the contract
Case in Point
Lumley
Vs
Wagner
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 Case in Point
• Facts: Lumley (P) contracted with Wagner (D) for her to
sing at Lumley’s theater for three months. Under the
contract, Wagner promised not to perform at other
theaters while under the contract without written
consent. The defendant subsequently arranged to sing
at G’s theater for more money.
• Lumley sued and sought an injunction preventing
Wagner from performing at other theaters. The trial court
granted injunctive relief for the plaintiff and Wagner
appealed.
• Issue: Can injunctive relief be used to enforce a promise
not to render personal services?
• Holding and Rule: Yes. Injunctive relief can be used to
enforce a promise not to render personal services.
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Quantum Meruit :
• “Means as much as earned or reasonable
remuneration”

Principle states that:

Person claims reasonable remuneration for the
services rendered by him where there is no
express promise to pay the same.
• Eg : Worker on daily piece rate system
• Co-author completes half the manuscript
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The claim under this principle
arises in following way :
1. When one party leaves the contract midway or refuses
to perform
2. When a contract is not divisible and there is part
performance.
3. When an indivisible contract is completed but badly.
4. Expressed or implied contract without mentioning the
remuneration.
5. When a contract becomes void

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 QUASI CONTRACTS:
• Inspite of the fact there was no legal
relationship, contract entered but the
conduct and relationship of the parties
impose a obligation on one party and
conferring a right on the other.
• Eg : finder of the lost goods 81
Principle of quasi contract states :

• A quasi contract rests on the contract of

equity that a person shall not be allowed to
enrich himself at the expense of another
• It is therefore also called as the principle
of restitution.

82
• A quasi contract is a contract that exists by
order of a court, not by agreement of the
parties. Courts create quasi contracts to avoid
the unjust enrichment of a party in a dispute over
payment for a good or service.
• In some cases a party who has suffered a loss in
a business relationship may not be able to
recover for the loss without evidence of a
contract or some legally recognized agreement.

• To avoid this unjust result, courts create a

fictitious agreement where no legally
enforceable agreement exists.

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Law Of Contract - Special Contracts
INDEMNITY AND GUARANTEE
Indemnity ( Sec 124)
• “ A contract by which one party
promises to save the from loss
caused to him by conduct of
promisor himself or any other
person is called contract of
indemnity”
• Eg : A contracts to indemnify B
against any legal action taken by C
for Rs. 2000/
• Parties : Indemnifier and
Indemnified 84
 Contract of Indemnity has the
following features:
• It is a contract between two parties
• One person promises to save the other from loss
• Such loss can be caused by promisor himself or
any other person
• There is an element of futurity or contingency
since it will arise only if the loss in the contract
has happened.

85
CONTRACT OF GUARANTEE ( SEC 126)
“ A contract of guarantee is a contract to perform
the promise or discharge the liability of a third
person in case of default.”
EG : BANK GUARANTEE
WHEN IS CONTRACT OF GUARANTEE
INVALID?
-When Guarantee Is Obtained By Misrepresentation
-When Obtained By Concealment
-When Condition Of Co-surety Joining Not Being
Fulfilled
-When The Contract Of Guarantee Lacks One Or
More Of The Essential Elements Of Contract.
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 Difference between Contract of Guarantee
and Indemnity

1. Indemnity is a contingent contract. In

guarantee it is on actual liability.
2. Liability is primary for indemnifier.
Liability is secondary for Gaurantor.
3. Indemnity is between two parties.
Guarantee is between three parties.

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 OF BAILMENT AND PLEDGE
SECTION 148

CONTRACT Bailment Means Delivery Of Goods To

Another Person For A Certain Purpose Or For A
Certain Period.
• Bailor
• Bailee
ESSENTIALS
• Delivery of goods by one person to another
• for specific purpose
• Agreed between the parties that as soon the purpose
is achieved goods shall be returned/ disposed
• The ownership remains with the bailor, the possession
goes to the bailee
• Handing over godown keys for storing material

88
 Duties of Bailee

• To disclose known defects in

the goods
• Not to make any
unauthorised use of goods
bailed
• Duty to return the goods
• To return any accretion to
the goods
• Not to set up any adverse
title against the bailor.
89
 Rights of Bailor
• If bailee does not take care and destruction of goods takes
place, bailer can claim compensation.
• If bailee uses the goods for un-authorized purposes, bailer has
the right to claim compensation.
• Bailer has the right to claim return of goods.
• Bailer has right to claim not only delivered goods but also
accruals on goods if any.
• In case where bailee has mixed the goods and they are of
sufferable nature, bailer can claim cost of separation from
bailee.
• In case where the goods are of insufferable nature, bailer has
right to claim compensation.
• Bailer has right to repudiate the Contract of bailment whenever
he wants but, by doing so, if bailee comes across any suffering,
bailer has to compensate. 90
Duties of Bailee

• To take reasonable care of the goods bailed.

• Not to make unauthorised use of goods bailed
• Not to mix goods bailed with his own goods
• Duty to return the goods
• Duty to return accretion
• Not to set up any adverse title against the
bailor.

91
Rights of the Bailee
• To claim compensation for injuries with regard to known
faults.
• To claim contribution for expenses.
• Right to get compensated by defective titled bailer.
• In Indemnity for involvement in bailment Contract, bailer
can make bailee answerable.
• Bailee has right of lien. It is only particular lien. That
means he can exercise right of lien against those goods
only on which amount is due.
• Bailee can return the goods to any one of the joint
owners.
• In times of need Bailee has right to approach Court of
law.
92
 Pledge (Section 172)

Pledge is bailment of goods as security for payment of debt or

performance of promise.
Eg : Mr. X deposits a necklace as security for obtaining
loan of 10000 /-
Essentials
• Repayment of loan or performance of the promise.
• Article must be movable
• Parties
• -The depositor is pawnor
• -The depositee is pawnee.

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 Difference between Bailment and Pledge:
‘Bailment’ refers to the transfer of goods from one party to another party for some
specific purpose. ‘Pledge’ on the other hand is a type of bailment in which goods
are transferred from one party to another party as security for payment of a debt
owed by him. We all many times in our life go through with these terms, but still we
have doubts regarding their actual meanings and differences. So let’s start our new
topic, difference between Bailment and Pledge.
• Bailment can be for any purpose , pledge is specific security.
• Bailment lien can be exercised on goods , In pledge goods can be
sold after due period.
• Goods can be used in bailment, as the contract permits, In pledge
goods can’t be used.

94
LAW OF AGENCY

Section 182 defines an agent as

• An agent is a person who is employed to bring
his principal into contractual relations with the
third parties.
Parties Involved : Agent, Principal, Third Parties.
Classes of Agents :
• Special or general ( with relation to third
Parties)

95
PRINCIPLE

• It is based on the principle ‘QUIT FACIT

PER ALIUM FACIT PER SE”

Meaning “he who does a thing through

another does it himself”

96
Essentials of Agency

1. Agreement between the principal and

the agent.
• 2. Intention of the agent to act on behalf
of the principal
• 3. Right of representation

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Personal liability of the agent to the
Third Party:
• Where it is agreed
• Where the principal is residing abroad
• Where he signs a negotiable instrument in
his own name.
• Where the agent acts for a minor principal.
• Agent liable for breach of warranty

98
Union Of India vs Zareen Taj Begum on 4 July, 2007

P has rented a property for the last 25 years

and affected major repairs. He filed a case
under rent Control act for possession of the
property which was granted but was contested
by K, property owner.
But P felt that as the property now belonged to
him, he need not pay rent during pendency of
the proceedings. K Files a suit for recovery of
rent for six months with penal interest and P
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pleads exemption thereof.
 M/S New India Sugar Mills Ltd vs.
Commissioner Of Sales Tax, Bihar
In November 1962, A, MD of New India Sugar Mills , Bihar
supplied a 1000 tons of Sugar to the State of Madras on the
order of Sugar Controller of India . State of Bihar represented by
R treated this transaction as sales and levied sales tax thereon,
under the Bihar Sales Act, 1947.
A contends the transfer Does Not Amount To Sale and hence
taxes cannot be levied

Questions
1. Is there any offer and acceptance?
2. Is there a contract? If yes, between whom?
3. Did the Sugar Mill have any violation in the matter?
4. Has the general property in goods passed by crossing the 100
borders?
 Commissioner Of Wealth-Tax, ... vs Abdul Hussain
Mulla Muhammad Ali ...
9 May, 1988

R received Rs.4,00,000 as loan from a Muslim friend Abdul Hussain Mulla

Mohammad Ali. Both were partners of a firm carrying on business at Ujjain.
R employed this sum as part of his capital in the firm. In the revised return,
filed by him, R sought to have the value of that loan excluded from his
wealth, on the claim that this loan was what was known to Muslim Law as
'Quaraza-e-Hasana'-a debt of good faith and goodwill under Sharia Law,
carrying with it no legal obligation on the part of the debtor to repay or
enforce repayment. He also quoted Balfour v Balfour [1919] 2 KB 571, CA
R supported this by a declaration furnished by the debtor that the sum was
received by him 'without any obligation and without any rate of interest and
without any consideration'. Reliance was also placed on some extracts of the
Quran said to relate to this transaction.
But S levied wealth Tax on this.

Judgement by Justice VENKATACHALIAH

Bhagwandas Goverdhandas Kedia vs M/S.
Girdharilal Parshottamdas ...
30 August, 1965

U entered into a contract with S by long-distance telephone.

The offer was spoken by U at Ahmedabad and the acceptance
was spoken by K at Khamgaon.
Alleging breach of the said contract respondent U filed a suit at
Ahmedabad.
On the issue of jurisdiction raised by the appellant K, the trial
court found that the Ahmedabad Court had jurisdiction to try
the suit.
The High Court rejected K’s plea stating, …” it is the acceptance
of offer and intimation of that acceptance which result in a
contract”.
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