MODULE I

GENERAL PRINCIPLE OF LAW OF CONTRACT

UNIT -1

Nature and Kinds of Contracts

Basic Informations:-

Offer+Acceptance=Promise

Promise+Consideration=Agreement

An agreement enforceable by law is a Contract

Law

Definition:-

“Law is a rule of external human action enforced by soverign political authority.” It states that following
elements should be available in a law.

a. A body of rules.
b. Supreme & External control.

General Principles of contract

Contract (Indian Contract Act 1872)
Definition of Contract
According to Sec2(4) of the Indian Contract Act, Contract is an agreement which is enforceable
by law.

“An agreement creating and defining obligation between us.

Essential Elements of a Valid Contract

1. Agreement
 There must be an agreement between the parties of a contract. An agreement involves a valid
offer by one party and valid acceptance by another party.

2. Consensus as idem
The parties to a contract must agree upon the subject matter of the contract in the same
manner and in the same sense.

3. Capasity of parties
There must be at least two parties to every contract.
4. Free consent
For the formation of a contract one must give the consent to another person. A consent is said
to be free, if it is not caused by undue influence, fraud, misrepresentation or mistake.
5. Lawful consideration
It means something in return. In every contract each agreement must be supported by
consideration. When one party agrees to give something he must be benefited by other party.
6. Lawful object
It must not be illegal or immoral or opposed to public policy. When the object of a contract is
not lawful, the contract is void.
7. Not declared to be void
The agreement might not have been expressly declared void by any law in force in the country.
8. Certainty & possibility of performance
The term of the contract should be certain purpose. The terms of agreement must be capable of
performance.
9. Intention to create legal relations
There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations.
10. Legal formalities
The agreement must comply with the necessary formalities as to writing, registration, stamping
etc. if any required in order to make it enforceable by law.

CLASSIFICATION OF CONTRACT
Contract may be classified in to three groups:-
I On the basis of Legal effects or validity or enforceability
a. Valid contract
An agreement enforceable by law is a valid contract. An agreement become a valid contract
when it fulfills all the essentials of a contract laid down.
b. Void contract
A contract coming out from a void agreement is a void contract. A void contract is not
necessarily be unlawful but it has no legal effects.
c. Voidable contract
 An agreement which is enforceable by law at the opinion of one not option of the others.
d. Un enforceable Contract

Contract is one which cannot be enforced in a court of law because of some technical defects
such as absence of writing, want of stamp etc.

e. Illegal contract or agreement

An illegal agreement is one which is criminal in nature or which is immoral or which is
against public policy.

II On the bais of Performance

a. Executed Contract
If both parties of a contract have performed their respective obligation, contract is
known as executed contract.
b. Executory contract
It is one in which both the parties have not yet performed their obligation either wholly
or in which there remains something to be done on both sides.
c. Unilateral contract
It is one sided contract in which only one party has to perform his duty or obligation.
d. Bilateral contract
A bilateral contract is one where the obligation or promise is outstanding on the part of
both the parties.

III On the basis of Formation

a. Express Contract
Expressly agreed upon whether orally or in writing at the time of the formation of
the contract.
b. Implied Contract
Contract is one which is inferred from the conduct of the parties or course of
dealing between them.
c. Quasi contract or Constructive contract
It is a contract in which there is no intention on either side to make a contract, but
the law imposes a contract. Eg: Certain books are delivered to wrong addressee, the
addressee is under an obligation either to pay for them or return them.
d. E-Com Contract
These contracts are entered in to between the parties using internet.

UNIT – 3
CONSIDERATION
An agreement made without consideration is void.
Definition:-
 Consideration is the price for which the promise of the other is bought, and the promise thus given
for value is enforceable.
Essentials of valid consideration
1. Consideration must be provided at the desire of the promisor.
2. Consideration may move from the promise or any other person.
3. Consideration may be an act, abstinence or forbearance or a return promise.
4. Consideration may be past, present or future.
5. Consideration need not be adequate.
6. Consideration must be real and not illusory
7. Consideration must be something which the promisor is not already bound to do.
8. Consideration must not be illegal, immoral or opposed to public policy.
Stranger to consideration
Section 2 (d) provides that a consideration may move from “ the promise or any other person”. But
according to English law consideration must move from the promisee and the promisee only.
Stranger to contract
Contract create only personal rights between the parties and only parties to a contract may sue and
be sued on the contract. This prevent third parties from having any rights or obligations in a
contract. This principle is called privity of contract or stranger to contract.
Exceptions
1. In the case of trust.
2. Marriage settlement, partition or other family arrangements.
3. Acknowledgement or estoppels
4. Covenants running with the land
No consideration no contract
Section 25 of the contract Act makes it clear that “ an agreement made without consideration is
void”.

Exceptions
1. Natural love and affection
An agreement entered into on the basis of love and affection and without receiving any valid
consideration may be enforceable if the following conditions are satisfied;
a. The agreement should be in writing.
b. It should be registered according to the law relating to registration.
c. It should be between parties standing in near relating to one another and
d. It should be made on account of natural love and affection.
2. Compensation for voluntary services
3. Time barred debt
4. Completed gifts
5. Contracts of agency

UNIT FIVE
FREE CONSENT
 Section 13 provises that ” two or more persons are said to consent when they agree upon the same
thing in the same sense.”
Section 14 provides that “ consent is said to be free when it is not caused by
1. Coercion, as defined in Section 15, or
2. Undue influence, as defined in section 16, or
3. Fraud as defined in section 17, or
4. Misrepresentation, as defined in section 18, or
5. Mistake subject to the provisions of sections 20,21 and 22
Coercion
Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code,
or the unlawful detaining or threatening to detain, any property to the prejudice of any person
whatever, with the intention of causing any person to enter into an agreement.
The following acts constitute coercion.
1. Committing an act forbidden by the Indian Penal Code, or
2. Threatening to commit any act forbidden by the Indian Penal Code, or
3. Detention of property of another to enter into an agreement, or
4. Threatening to detain property of another person.

Effect of coercion
Section 19 provides that an agreement consent to which is obtained by coercion is voidable at the
option of the party whose consent is so obtained. However the person to whom money had been
paid or anything delivered under coercion must repay or return it.
Duress
In the place of the Indian expression coercion the term used in England is duress. Coercion has a
wider scope than duress. Duress involves actual or threatened violence over the person of another
with a view to obtaining his consent to the agreement.

Undue Influence
A contract is said to be induced by ‘undue influence’ where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of the other in the following situations.
1. Where he holds real or apparent authority over the other.
2. Where he stands in a fiduciary relation to the other;
3. Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress.

Effect of undue influence

When consent to an agreement is caused by undue influence, the agreement in a contract
voidable at the option of the party whose consent was so caused.
Differences between Coercion and undue influence
1. Coercion involves the use of physical force.
Undue influence involves only moral pressure.
2. In the case of undue influence the relationship between the parties should be such that one
in a position to dominate the will of the other.
In case of coercion, there may not be any relationship between the parties.
3. Coercion involves criminal liability.
Undue influence do not involve any criminal liability.
4. In the case of certain relationships there is a presumption of undue influence, whereas there
are no such presumptions in coercion.
5. Coercion contract is voidable. In the case of undue influence the contract either voidable or
the court may set aside it or enforce it in modified form.

Fraud
Fraud is the willful representation made by a party to a contract with the intent to deceive the
other party or to induce such party to enter into a contract.

Essential elements of fraud

1. There must be a false representation. Without a representation there cannot be a fraud.
2. The fraud must have been committed by a party to the contract or with his connivance or by
his agent.
3. Fraud by a stranger to contract does not affect the validity of the contract.
4. The representation must be made with the knowledge that it is false.

5. The representation must be made with the intention to deceive the other party.

6. The party to the contract must have been deceived and should have suffered damage or
loss.

Whether silence would amount to fraud?.

In exceptional situations a party to the contract may have a responsibility to speak and in such
situations silence may amount to fraud. The following are the situations.
1. Duty to speak
a. Contracts of utmost good faith.
b. Where the parties stand in near relationship.
2. Where silence itself is equivalent to speech
3. Other exceptions:
a. Change of circumstances
b. Latent defects.

Effects of fraud
When consent to an agreement is caused by fraud, the agreement is a contract voidable at the
option of the party whose consent was so caused. Some one who has suffered a fraud has the
following remedies;
1. He may rescind the contract
2. He can sue for damages.
Misrepresentation
It is a false statement which the person making it honestly believes to be true or which he does not
know to be false. It also includes non-disclosure of a material fact or facts without any intent to
deceive the other party.
Essential requirements of misrepresentation
1. There must be a representation.
2. The representation must be of a material fact.
3. The representation must be made before the conclusion of the contract with a view to
induce the other party to enter into a contract.
4. It must have actually been acted upon and must have induced the contract.
5. It must be wrong but the person who made it honestly believed it to be true.
6. It must be made without any intention to deceive the other party.

Differences between fraud and misrepresentation

1. In misrepresentation there is no intention to deceive the other party.
In fraud there is intention to deceive the other party.
2. In misrepresentation the aggrieved party has no right to sue for damages.
In fraud there is a right to claim damages.
3. Fraud is usually an offence under criminal law for it involves cheating.
There is no criminal element in misrepresentation.
4. In case of misrepresentation the aggrieved party cannot avoid the contract if he could have
discovered the truth with ordinary diligence.
In cases of fraud, the aggrieved party could avoid the contract even though he could discover the
truth with ordinary diligence.

Mistake
Mistake may be defined as an erroneous belief about something. The area of mistake is divided
into two categories;
1. Mistake of law
It is further divided into two categories.
a. Mistake as to foreign law
b. Mistake as to Indian law
a. Mistake as to Indian law
A contract cannot be avoided even if the parties were under a mistake about a provision of the
Indian law. The presemption is that everyone is aware of the law of the nation he belongs to.
b. Mistake as to foreign law
Such mistakes are treated as mistakes of fact. The contract may be void under some situations.
2. Mistake of fact
Mistake of fact may be :-
a. Bilateral mistake
 Section 20 of the Act provides that “Where both the parties to an agreement are under a mistake
as to matter of fact essential to the agreement, the agreement is void”.
The cases falling under bilateral mistake could be classified into two:-
1. Mistake as to the subject matter
a. Mistake as to the existence of the subject matter.
b. Mistake as to the identity of the subject matter.
c. Mistake as to the title of the subject matter.
d. Mistake as to the quality of the subject matter.
e. Mistake as to the quantity of the subject matter.

2. Mistake as to the possibility of performing the contract.

b. Unilateral mistake
It is a mistake of one of the parties to a contract as to a matter of fact. Section 22
provides that “ a contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact”.
UNIT – SIX
LEGALITY OF OBJECT AND CONSIDERATION
According to Section 23 of the Contract Act, “ an agreement, the object or consideration is
unlawful is void”.
When consideration or object is unlawful
The object or consideration of an agreement shall be unlawful in the following situations.
a. If it is forbidden by law
If the consideration or the object of an agreement is forbidden by law it shall be void.
b. If it is of such a nature that if permitted it would defeat the provisions of any law
The agreement may not be providing for something against the provisions of law.
c. If it is fraudulent
An agreement which is made for a fraudulent purpose is void.
d. If it involves or implies injury to the person or property of another
e. If the court regards it as immoral
f. If the court regards it as opposed to public policy.

Agreements opposed to public policy

1. Agreements of trading with enemy.

Trading with enemy is against public policy because it may result in some help to the enemy nation.
2. Stifling prosecution
If any individual enter into a contract with someone to settle a crime that agreement is not
enforceable on the ground that it is opposed to public policy.
3. Maintenance and champerty
Maintenance is an agreement to give assistance to another to enable him to bring or defend legal
proceedings.
Champerty is an agreement whereby one party assists another to bring an action for recovering
money or property and is to share in the proceeds of the action.
 4. Trafficking in public offices and titles
Agreements for procuring public offices or titles for monetary or other consideration are void.
5. Interference with course of justice
6. Marriage brokerage agreements
7. Agreement in restraint of parental rights.

8. Agreements tending to create interest opposed to duty.

9. Agreements interfering with marital rights.
10. Agreements in restraint of personal liberty.
11. Agreement in restraint of marriage.
12. Agreement in restraint of trade.
An agreement seeking to restraint a person from exercising a lawful profession, trade or business
of any kind is void to that extent. The following are those exceptions;
a. Sale of good will
On sale of the goodwill of a business, the seller may agree not to carry on similar business within
specified local limits so long as the buyer carries on like business.
b. Exceptions under the Partnership Act, 1932.
1. A partner shall not carry on any business other than that of the firm while he is a partner.
2. An outgoing partner may agree with his partners not to carry on a business similar to that of
the firm within a specified period or within specified local limits.
3. Where the goodwill of a firm is sold after dissolution, a partner may carry on a business
competing with that of the buyer and he may advertise such business.
c. Exceptions under the common law
1. Service agreements
An employer may prevent an employee from working anywhere else during the term of a contract of
employment. These restrictions are generally considered as valid.
2. Trade combinations
An agreement between different firms in the nature of a trade combination in order
to maintain a price level is not illegal.

UNIT – SEVEN

VOID AGREEMENTS

Void Agreements

1. Agreements the meaning of which is uncertain.

Section 29 provides that agreements, the meaning of which is not certain, or capable of being made
certain, are void.
 2. Wagering agreement or Wager
Wager means a ‘bet’. It is defined as an agreement between two parties by which one promises to
pay money or money’s worth on the happening of some uncertain event in consideration of the
other party’s promise to pay if the event does not happen.

Essentials of a wagering agreement

1. There must be a promise to pay money or money’s worth.
2. Promise is conditional on the happening or not happening of an event.
3. The event is uncertain.
4. There must be two parties and each party may stand to win or lose.
5. The parties should not have any control over the event.
6. The parties should have no interest other than the stake involved.

Restitution
When a contract becomes void, the party who has received any benefit under it must restore it
to other party or must compensate the other party by the value of the benefit. This restoration
of the benefit is called restitution.
The principle of restitution is carried in the following situations;
1. A party rescinding a voidable contract shall, if he has received any benefit under it shall
restore it to the person from whom he received it.
2. When an agreement is discovered to be void or when a contract becomes void, any person
who has received any advantage under such agreement or contract is bound to restore it, or
to make compensation for it, to the person from whom he received it.

UNIT – EIGHT

CONTINGENT CONTRACTS

On the basis of area of performance of contracts, generally contracts can be classified into two categories,
absolute or contingent.

1. Absolute contract
If is a contract in which the parties must perform their promises in all events.
2. Contingent contract
It is a contract to do or not to do something if some event, collateral to such contract does or does
not happen.

Essential characteristics of a contingent contract

1. There must be a contract to do or not to do something.
2. It must depend on the happening or non-happening of an uncertain event.
3. The event must be collateral to the contract.
 Rules regarding contingent contracts

1. Contingent contracts on the happening of an event

2. Contracts dependent on the non-happening of an event.
3. Contracts contingent upon the future conduct of a person.
4. Contracts contingent upon happening of a specified event within a fixed time.
5. Contracts contingent upon non-happening of a specified event within a fixed time.
6. Contracts contingent upon the happening of an impossible event.

Differences between wagering agreement and contingent contract.

1. Wagering agreement consists of reciprocal promises.

A contingent contract may not contain reciprocal promises.
2. In a wagering agreement the parties have no other interest in the subject matter of the agreement
except the winning or losing of the amount of the wager.
In a contingent contract parties may have some interest in the subject matter.
3. Wagering agreements are contingent in nature.
Contingent contracts are not wagering in nature.
4. A wagering agreement is void.
A contingent contract is valid.

UNIT – NINE

PERFORMANCE OF CONTRACT

Section 37 lays down that the parties to a contract must either perform or offer to perform, their respective
promises, unless such performance is dispensed with or executed.

Attempted performance or tender

When the promisor expresses his willingness to perform the obligation, but the promise refuses to accept,
it is termed as attempted performance or tender.

Essentials of a valid tender.

1. It must be unconditional when it is in accordance with the terms of the contract.

2. It must be made at a proper time and place.
3. It must be made to the proper person.
4. Tender must be whole and not in part.
5. Tender of money should be in current notes or coins.
6. Tender for delivery of goods must be for the quantity and quality as stipulated in the contract.
Who shall perform the contract?.

1. The promisor
2. The agent
3. The legal representative
4. Third parties

Who shall demand performance?.

It is only the promise who can demand the performance of the contract.

Time and place of performance

The contract Act gives guidelines regarding time and place.

1. Where no application is to be made and no time is specified.

2. Where time is specified but no application is to be made.
3. Application for performance on a certain day and at a proper time and place.
4. Place of performance where neither application is required nor a place of performance fixed.

Devolution of joint rights and liabilities

Devolution means passing over from one person to another. When two or more persons make a joint
promise, they are known as joint promisors. The following are the rules regarding joint promisors.

1. Joint performance by all promisors.

When two or more persons have made a joint promise, all of them must jointly fulfill the promise. If
any of the joint promisors dies, his legal representatives will be jointly liable for performance along
with the surviving promisor or promisors.
2. Joint promisors may be compelled to perform
When two or more persons make a joint promise and there is no express contract to the contrary,
the promise may compel any one or more of the joint promisors to perform the whole of the
promise.
3. Right to claim contribution
If any one of the joint promisors is compelled to perform the whole of the promise, he may require
the other joint promisor to contribute equally with himself to the performance of the promise.
4. Sharing of loss arising from default.
If any one of the joint promisors makes default in the contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares.
5. Release of a joint promisor
A release by the promise of any of the joint promisors does not discharge the other joint promisors
from liability. The released joint promisor continue to be liable to the other joint promisors.
 Appropriation of payments
The following are the rules relating to appropriation of payment.
1. Appropriation by debtor.
Where the debtor makes an express or implied intimation as to the debts to which his payments
must be applied, the creditor must apply the sum to that specific debt.
2. Appropriation by the creditor
Where the debtor does not intimates at the time of payment as to which particular debt the
payment is to be applied, the creditor may apply the payment to any lawful debt.
3. Where the debtor does not intimate and the creditor fails to appropriate.
Where the debtor does not expressly intimate and where the creditor fails to make any
appropriation, the payment shall be applied in discharge of the debts in chronological order.

Assignment of contracts

The word assignment means transfer. It means transfer of contractual rights or obligations by a party to
the contract to some other person. It may happen either by;

1. Assignment by act of the parties

When a party to a contract voluntarily transfers his obligation or right to another person who is a stranger
to the contract, it can be termed as assignment by act of the parties. It may be either rights or obligations.

a. Assignment of contractual rights

The rights and benefits under a contract can be assigned unless the contract is personal in nature.
b. Assignment of contractual obligations
The obligations or liabilities under a contract cannot be assigned except with the consent of the
promise.
2. Assignment by operation of law.
It usually happens in the case of death of a person or due to insolvency.
a. Death
When a party to a contract dies, his rights and liabilities devolve upon his heirs and legal
representatives.
b. Insolvency
In case of insolvency of a person, his rights and liabilities may be transferred to the Official
Receiver appointed by the Court.
UNIT – 10

DISCHARGE OF CONTRACT

Discharge of contract means the termination of contractual relationship between the parties. When a
contract is discharged the rights and obligations created by it comes to an end.

A contract may be discharged by the following modes;

1. By performance
2. By agreement
3. By impossibility
4. By lapse of time
5. By operation of law
6. By breach of contract

1. Discharge by performance
When the contract is performed fully the contract ceases and the parties are discharged from any
further liability.
Performance of contract may be;
a. Actual performance
When both the parties perform their obligations exactly as per the terms of the contracts, the
contract is discharged by actual performance.
b. Attempted performance or tender
When the promisor offers to perform the contractual obligation and the promise is not willing to
accept the performance the contract is deemed to be discharged by attempted performance.
2. Discharge by agreement
There are various modes by which a contract may be discharged by agreement. They are as follows;
a. Novation
It means substituting a new contract in the place of an old contract. The essential requirement
of novation is that this new agreement is entered into in consideration for the old agreement.
b. Rescission
Parties to a contract may decide to cancel a contract on the basis of mutual consent and
consideration.
c. Alteration
Alteration of a contract takes place when one or more of the terms of the contract is altered by
mutual consent of the parties to the contract.
d. Remission
It means acceptance of a leaser performance that what was due the original contract.
e. Waiver
It is a deliberate abandonment of the rights which parties to the contract mutually have against
each other.
f. Merger
It takes place when an inferior right accruing to a party under a contract merges into a superior
right accruing to the same party under same or some other contract.
3. Discharge by impossibility of performance
a. Impossibility known to the parties at the time of making contract.
b. Impossibility unknown to the parties at the time of making of contract.
c. Impossibility known to the promisor alone.
d. Impossibility which arises subsequent to the formation of the contract.
When a contract which was capable of performance at the beginning subsequently due to
change of circumstances becomes impossible of performance, the contract becomes void.
When the impossibility is caused by circumstances beyond the control of the parties the contract
gets discharged. This doctrine is also known as doctrine of supervening impossibility or post
contractual impossibility.
The following are the situations where a contract gets discharged by supervening impossibility.
a. Destruction of subject matter of contract.
b. Non-existence or non occurrence of a particular state of things.
c. Death or personal incapacity.
d. Change of law or stepping in of a person with statutory authority.
e. Outbreak of war

Exceptions to the doctrine of supervening impossibility

a. Difficulty of performance
b. Commercial impossibility
c. Impossibility due to failure of a third person.
d. Self-induced impossibility.
e. Strikes, lock outs and civil disturbances etc.
f. Failure of one of the objects.

Doctrine of frustration
It is the principle prevailing in England in the place of the concept of supervening impossibility
applied in India. The doctrine is applicable when the common object of a contract can no longer be
achieved or when the contract, after it is made becomes impossible of performance due to
circumstances beyond the contemplation of the parties.

4. Discharge by operation of law

A contract may be discharged by operation of law. The following are the situations.
a. By death
b. By insolvency
c. Unauthorized alteration
5. Discharge by breach of contract
1. Actual breach of contract

It may takes place either;

 a. At the time when the performance of the contract is due.
b. During the performance of the contract.
2. Anticipatory breach of contract
If a party to a contract repudiates his obligation before the time fixed for performance, it can be
treated as anticipatory breach of contract.

UNIT -11
REMEDIES FOR BREACH OF CONTRACT

The affected party has one or more of the following options in case of a breach of contract.
1. Rescission of the contract
2. Suit for damages
3. Suit for injunction
4. Suit upon quantum meruit
5. Suit for specific performance.

1. Rescission of the contract

It is the revocation of a contract. The court may grant rescission in the following cases;
a. Where the contract is voidable at the option of the plaintiff.
b. Where the contract is unlawful.
2. Damages
Damages are a monetary compensation allowed by the court, to the injured party for the loss or
injury suffered by him by the breach of the contract. The word damages means compensation.

Types of damages
a. General or ordinary damages.
These are damages which arise naturally in the usual course of things from the breach of contract.
b. Special damages
Special damages are compensation amounts which may be claimed by the aggrieved party over and
above the ordinary damages because of special circumstances known to both the parties.
c. Vindictive or exemplary damages
In exception situations the court may award damages with an intention to punish the wrong doer for
the injury caused. The situations are;
1. Breach of a promise to marry,
2. Dishonour of cheque by a banker wrongfully when he possesses sufficient funds to the credit
of the customer.

d. Nominal damages
Nominal damages are very small, these are awarded in situations where the injured party has not in
fact suffered any loss by reason of the breach of contract.
Liquidated damages and penalty
 Liquidated damages represent a fair and genuine pre estimate of the probable loss that might
ensue as a result of the breach of contract.
Penalty is a sum named in the contract at the time of its formation, which is disproportionate to
the damage likely to accrue as a result of the breach.
3. Quantum Meruit
The term quantum meruit means as much as earned. A right to sue on a quantum meruit where a
contract, partly performed by one party, has become discharged by breach of the contract by the
other party. Contract is either discharged by the breach of contract or it has become void.
4. Specific performance
This is a discretionary remedy which is allowed only in a limited number of cases.
Some of the cases where specific performance may be awarded are as follows;
a. Where the contract is of such a nature that compensation in money terms is not an
adequate relief.
b. When there exists no standard for ascertaining the actual damage caused by the non-
performance of the act.
c. When it is probable that compensation in money cannot be got for the non-performance of
the contract.
5. Injunction
An injunction is an order of the court to restrain the wrong doer from doing or continuing a wrongful act. It
is preventive relief and is granted at the discretion of the court.

UNIT – 12

QUASI-CONTRACTS

It is a contract in which there is no intention on either side to make a contract, but the law imposes a
contract. The following are the types of quasi-contracts recognized by Indian Contract Act.

1. Claim for necessaries supplied.

If a person incapable of entering into a 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 supplier is entitled to recover the price
from the property of such incapable person.

2. Payment by an interested person

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.

The following are the essentials ;

a. A person must by law be bound to pay some money.

b. Another person must be interested in the payment of that amount.

c. The other person must have paid the money because of such interest.

3. Obligation to pay for non-gratuitous acts

Where a person lawfully does anything to another person, or delivers anything to him, not intending to do so
gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to
the former in respect of, or to restore, the things so done or delivered.

4. Responsibility of finder of goods

According to section 71, a person who finds goods belonging to another and takes into his custody, is
subject to the responsibilities of a bailee.

5. Money paid by mistake or under coercion

Section 72 provides that a person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it.

Quantum Meruit

The principle of quantum meruit operates when the original contract is discharged. The claim for
quantum meruit arises in the following cases;

1. When an agreement is discovered to be void or when a contract becomes void.

2. When something is done without any intention to do so gratuitously.

3. When there is an express or implied contract to render services but there is no agreement as to
remuneration.

4. When the completion of the contract has been prevented by the act of the other party to the
contract.

5. When a contract is divisible and the party not in default has enjoyed the benefit of part
performance.

UNIT II

OFFER AND ACCEPTANCE

Offer or Proposal
An offer is a conditional proposal made by one party to another to enter in to a legally binding
agreement with him.
Definition:-
According to Sec2(a) of the Contract Act “when one person signifies to another his willingness
to do with a view to obtaining the asset of that other to such act.
The person making the proposal is called the proposer or offeror.
The person to whom the proposal is made is called the offeree.
How an offer is made
An offer may be express or implied.
An express offer is one which may be made by words spoken or written.
Eg: An offer made through a letter or e-mail.
An implied offer is one which may be gathered from the conduct of the parties of the
circumstances of the case.
Eg: A person get on to a bus.
Essentials of a valid offer
1. It must be intend to create legal relations.
2. The terms of the offer must be definite and certain.
3. Offer must be communicated to the offeree
4. An offer is different from a statement of intention or invitation to offer.
5. Special conditions attached to an offer must be communicated.
6. An offer may be general or specific.
7. Offer must be made with a view to obtaining the assent of the other party.
8. An offer may be conditional.
9. Offer should not contain a term, the non-complaince of which would amount to acceptance.
10. An offer may be express or implied.
11. An offer may be positive or negative.
12. A mere statement and intention is not an offer.

Different Kinds of offer

1. Specific offer
Offer is addressed to a define individual or body of individual it is called specific offer.
2. General offer
If an offer addressed to an uncertained body of individuals it is called general offer.
3. Standing offer
An offer for a continuous supply of a certain article at a certain rate over a definite
period is called standing offer.

4. Counter offer
It is rejecting the original offer and making a new offer.
5. Cross offer
When two parties make identical offer to each other in ignorance of each others, such
offers are called cross offer.
 Acceptance
It means giving consent to an offer by the offeree.
Definition:-
According to Sec 2(b) of the contract Act “When the person to whom the proposal
is made signifies his assent there to, the proposal is said to be accepted. A proposal
when accepted becomes a promise”.
Express and Implied Acceptance
Acceptance may be express or implied. It is express when it is communicated by
words, spoken or written by doing some required act.
Acceptance is implied when it is to be gathered from the surrounding
circumstances or the conduct of the parties.
Essentials of a valid acceptance
1. Acceptance must be absolute and clear.
2. Acceptance must be communicated to the offeror.
3. Acceptance must be made within a reasonable time.
4. It must be according to the mode prescribed.
5. The acceptor must be aware of the proposalat the time of the acceptance.
6. Acceptance must be given before the offer lapses.
7. Acceptance cannot be implied from silence.

Communication of offer, acceptance and revocation

Communication of offer

The communication of an offer is complete whent it comes to the knowledge of the person to
whom it is made.

Communication of acceptance

The communication of an acceptance is complete;

a. As against the proposer when it is put into a course of transmission to him, so as to be out of the power of
the acceptor.
b. As against the acceptor when it comes to the knowledge of the proposer.

Communication of revocation

The communication of a revocation is complete;

a. As against the person who makes it, when it is put into a course of transmission to the person to whom it is
made, so as to be out of the power of the person who makes it.
b. As against the person to whom it is made, when it comes to his knowledge.

Time for revocation of offer and acceptance.

 A proposal may be revoked at any time before the communication of its acceptance is complete as against
the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as
against the acceptor, but not afterwards.

Loss of letter of acceptance in postal transit

The contract is complete, the moment the letter of acceptance is posted.

Various modes of revocation

1. Revocation by communication of notice.

2. By lapse of prescribed time.
3. Death of the offeror
4. Insanity of the offeror.
5. Non fulfillment of conditions.
6. Offer not accepted according to the mode prescribed.
7. Rejection by a counter offer.

UNIT – 3
CONSIDERATION
An agreement made without consideration is void.
Definition:-
Consideration is the price for which the promise of the other is bought, and the promise thus given for
value is enforceable.
Essentials of valid consideration
1. Consideration must be provided at the desire of the promisor.
2. Consideration may move from the promise or any other person.
3. Consideration may be an act, abstinence or forbearance or a return promise.
4. Consideration may be past, present or future.
5. Consideration need not be adequate.
6. Consideration must be real and not illusory
7. Consideration must be something which the promisor is not already bound to do.
8. Consideration must not be illegal, immoral or opposed to public policy.
Stranger to consideration
Section 2 (d) provides that a consideration may move from “ the promise or any other person”. But
according to English law consideration must move from the promisee and the promisee only.
Stranger to contract
Contract create only personal rights between the parties and only parties to a contract may sue and be sued
on the contract. This prevent third parties from having any rights or obligations in a contract. This principle
is called privity of contract or stranger to contract.
Exceptions
1. In the case of trust.
2. Marriage settlement, partition or other family arrangements.
3. Acknowledgement or estoppels
4. Covenants running with the land
No consideration no contract
Section 25 of the contract Act makes it clear that “ an agreement made without consideration is void”.

Exceptions
1. Natural love and affection
An agreement entered into on the basis of love and affection and without receiving any valid consideration
may be enforceable if the following conditions are satisfied;
a. The agreement should be in writing.
b. It should be registered according to the law relating to registration.
c. It should be between parties standing in near relating to one another and
d. It should be made on account of natural love and affection.
2. Compensation for voluntary services
3. Time barred debt
4. Completed gifts
5. Contracts of agency

.
Module II
CONTRACTS OF INDEMNITY AND GUARANTEE
Contract of Indemnity
Definition:-
A contract by which one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other person, is called a contract of
indemnity.
The person who promises to make good the loss is called indemnifier.
The person whose loss is to be made good is called indemnified or indemnity holder.
Eg:- A contract of marine insurance or fire insurance is a contract of indemnity.
There is no contract of indemnity in the case of life insurance.
Features or elements of contract of indemnity
1. Express contract of indemnity
Where the terms of the contract of indemnity are either in oral or in written form , it is called
express contract of indemnity.
2. Implied contract of indemnity
It can be inferred from the circumstances of the case or from the relationship of parties.
3. Compensation of loss
Indian courts are the opinion that the contract of indemnity includes the promise made to indemnify
the loss caused by human agency as well as by the event or accident not depending on the conduct
of human being.
Court treat all general insurance contracts as contract of indemnity.
4. Essentials of a valid contract
Contract of indemnity also required to possess all the essentials of valid contract.

Kinds of Indemnity
1. Express contract of indemnity
2. Implied contract of indemnity.

Right of indemnity holder when sued

1. All damages which he may be compelled to apay in any suit in respect of any matter to
which the promise to indemnify applies.
2. All costs which he may be compelled to pay in bringing or defending such suit.

3. All sums which he may have paid under the terms of any compromise of any such suits.

Commencement of indemnifier’s liability

1. The liability commences only after the indemnified has suffered some loss.
2. The liability is generally accepted.
Contract of guarantee
It is a contract to perform the promise or to discharge the liability of a third person in case of his
default.
The person who gives the guarantee is called surety.
The person inrespect of whose default the guarantee is given is called the Principal debtor.
The person to whom the guarantee is given is called the creditor.
Guarantee is a tripartite agreement
A contract of guarantee has three parties, the creditor, debtor and the surety.
Essential features of a contract of guarantee
1. Concurrence
C ontract of guarantee requires the concurrence of all the three parties to the agreement.
2. Existence of a primary liability
3. Writing not compulsory
4. Essentials of a valid contract.
Distinction between a contract of guarantee and a contract of indemnity
Sl.No. Basis Contract of guarantee Contract of Indemnity
1 Number of parties 3 parties-Surety,Principal debtor and creditor 2 parties-
Indemnifier and Indemnified
2 Number of contracts 3 contracts 1 contract
3 Nature of liability The liability of surety to the creditor is secondary in nature. The
liability of the indemnifier to the indemnified is primary in nature.
4 Request The surety should have given guarantee at the request of the principal
debtor. It is not necessary for the indemnifier to act at the request of the indemnified.
5 Commencement of liability There is an existing liability, the performance of which is
guaranteed by the surety. The liability of the indemnifier arises only on the happening of a
contingency.

Kinds of guarantee
1. Specific guarantee
When a guarantee extends to a single transaction or debt, it is called a specific or simple guarantee.It
comes to an end when the debt is duly discharged.
2. Continuing guarantee
When a guarantee extends to a series of transactions, it is called a continuing guarantee.
3. Retrospective guarantee
It is a guarantee given for a future debt or obligation.
4. Prospective guarantee
It is a guarantee given for a future debt or obligation.
5. Fidelity guarantee
It is a guarantee given for the good conduct or honesty of a person employed in a particular office.

Revocation of a continuing guarantee

A continuing guarantee can be revoked under the following circumstances;
a. By notice
A continuing guarantee may at any time be revoked by the surety as to future transactions, by giving
a notice to the creditor.
b. By death of surety
In the absence of any contract to the contrary, the death of a surety shall operate as a revocation of
a continuing guarantee.

Nature and extent of surety’s liability

1. Nature of surety’s liability

It provides that the liability of the surety is coextensive with that of the principal debtor.
2. Surety may limit his liability
The surety can enter into a separate contract and he can limit his liability.
3. Secondary liability
The liability of the surety is secondary and contingent arising only on default of the principal debtor.
Rights of surety
The surety has rights against;
1. The creditor
2. The principal debtor
3. The co- sureties.

A. Right against the creditor

a. Before payment of the guaranteed debt
A surety may, after the guaranteed debt has become due and before he is called upon to pay,
require the creditor to sue the principal debtor.
1. Right of set off
On being sued by the creditor, the surety can rely on any set off or counterclaim which the debtor
has against the creditor.
2. Subrogation
Where a guaranteed debt has become due and the surety has paid all that he is liable for, he is
invested with all the rights which the creditor had against the principal debtor.
3. Right to equities
After paying off the guaranteed debt, the surety is entitled to all equities which the creditor could
have enforced not only against the principal debtor himself but also against the person claiming
through him.
4. Right to securities
The surety is entitled to the benefit of every security held by the creditor at the time of making the
contract whether the existence of the secutiry is, or is not , known to him.

B. Right against the Principal Debtor

a. Right to indemnity
In every contract of guarantee there is an implied promise by the principal debtor to indemnify the
surety, and the surety is entitled to recover from the principal debtor all payments properly made.

b. Right of subrogation
On the default of the principal debtor, the surety can, after paying off the creditor, claim all those
rights which the creditor had against the principal debtor.
c. Right to be relieved of liability
Before making the payments, the surety can compel the principal debtor to relieve him from
liabilities by paying off the debt.

C. Rights against co-sureties

When a debt is guaranteed by two or more sureties, they are called co-sureties.
a. Co-sureties liable to contribute equally.
Where there are two or more co-sureties for the same debt or duty and the principal debtor makes a
default, the co-sureties, in the absence of any contract to the contrary, are liable to contribute
equally to the extent of the default.

b. Liability of co-sureties bound in different sums.

Where the co-sureties have agreed to guarantee different sums, they have to contribute equally
subject to the maximum amount guaranteed by each one.
c. Release of a co surety
 Where there are co-sureties, a release by the creditor of one of them does not discharge the others,
neither does it free the surety so released from his liability to the other sureties.

Discharge of surety
A surety is said to be discharged when his liability comes to an end. The liability of a surety comes
to an end in the following circumstances;
1. Discharge of surety
a. Revocation by giving notice.
b. Revocation by death.
2. Discharge of surety by conduct of the creditor
a. Variation in terms of contract.
b. Release or discharge of principal debtor.
c. Compounding with or giving time to the principal debtor.
d. Loss of security.
3. Discharge of surety by invalidation of contract
a. Fraud, concealment etc.
b. Lack of essential elements of a valid contract.

MODULE III
CONTRACT OF BAILMENT AND PLEDGE
BAILMENT
The term bailment is derived from a French word “baillier”, which means to deliver. The essence of
bailment is the transfer of possession.
Section 148 defines bailment as “ 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 directions of the person delivering them”.
The person delivering the goods is called the ‘bailor’ and the person to whom they are delivered is called
the ‘bailee’.

Essentials of bailment
1. Delivery of possession
Delivery involves actual or constructive.
Actual delivery may be made by handing over the possession of the goods to the bailee.
Constructive delivery may be made by doing something which has the effect of putting the goods in the
possession of the intended bailee or any person authorized to hold them on his behalf.
2. Contract
A bailment is usually created by agreement between the bailor and the bailee. The agreement may be
express or implied.
3. Delivery must be for some purpose
The delivery of goods from the bailor to the bailee must be for some purpose.
4. Return of goods
Bailment is made for some purpose and after the purpose is accomplished, the goods are to be returned.
5. Movable goods
Only goods can be the subject matter of a contract of bailment. Immovable property cannot be bailed.

Kinds of bailment

1. Gratuitous bailment
Where no consideration passes between the bailor and the bailee it is a gratuitous bailment.

2. Non gratuitous bailment

It is bailment where some consideration passes between the parties.
Rights and duties of bailor
Duties of bailor
1. To disclose known faults
The most important duty of the bailor to the bailee is to disclose faults in the goods bailed. The bailor must
examine the goods and remove such defects as reasonable examination would have disclosed.
2. To bear extra-ordinary expenses of bailment.
The bailor must reimburse the bailee for any extraordinary expenses provided these were not incurred due
to the default of the bailee.
3. To indemnify bailee
Where the title of the bailor to the goods is defective and the bailee suffers as a consequence, the bailor is
responsible to the bailee for any loss.
4. To indemnify bailee in case of premature termination of gratuitous bailment.
A gratuitous bailment can be terminated by the bailor at any time. It can be terminated even if it was
entered into for a specific duration or a particular purpose. If there is a premature termination of bailment,
any loss accruing to the bailee from such termination should be indemnified by the bailor.
5. To receive back the goods
It is the duty of the bailor to take back the goods when the bailee returns them after the expiry of period of
bailment, or the accomplishment of the purpose for which goods were bailed.

Rights of bailor

1. Enforcement of bailee’s duties

A bailor can enforce duties of the bailee in a court of law through appropriate proceedings.
2. Termination of bailment.
If there is any inconsistent of unauthorized use of bailed goods by the bailee, the bailor can terminate the
contract of bailment.
3. To get back goods lent gratuitously
When goods are lent gratuitously, the bailor can demand their return whenever he pleases even though he
lent them for a specified time or purpose.
4. Right to file suit against any wrong doer
If a third party does some wrongful act and deprives thebailee from the use of goods bailed or does some
injury to the goods bailed, the bailor has a right to file a suit against the wrong-doer and claim compensation
from him.

Rights and duties of bailee

Duties of bailee
1. To take reasonable care of the goods bailed
It is the duty of the bailee to prove that he has taken reasonable care of the goods and the loss was in spite
of due care.
2. Not to make any unauthorized use of goods bailed.
3. Not to mix goods of bailor with his own goods.
If the bailee mixes up his own goods with those of the bailor, following rules shall apply;
a. Mixes with the bailer’s consent.
b. Without the bailor’s consent, and separate.
c. Without the bailor’s consent and not separable.
4. Not to set up an adverse title.
5. To return any accretion to the goods.
6. To return the goods.
Rights of the bailee
1. Enforcement of duties of bailor.
2. Bailment by several joint owners.
3. Delivery of goods to bailor without title.
4. Right to file case against trespassers
5. Right to implead
6. Bailee’s lien

Law relating to lien

Lien means a right of a person to retain possession of some goods belonging to another until some debt or
claim of the person in possession is satisfied. This right is based on possession and therefore it is also called
possessory lien.

Lien may be;

1. Particular lien
It is one which is available to the bailee against only those goods in respect of which he has rendered
some service involving the exercise of labour and skill. The right available to a bailee under a contract of
bailment is in the nature of particular lien.
2. General lien
It is the right of a person to retain possession of goods as security for general balance of account. The bailee
can retain any goods bailed to him for any amount due to him in respect of those goods or any other goods.
 A general lien is available only to certain categories of persons like bankers,

factors,wharfingers,attorneys of High Courts and policy brokers.

Distinction between Particular lien and general lien

1. Particular lien is a right which is available to a bailee against only those goods in respect of which
skill and labour have been expended.
General lien can be exercised in respect of any property belonging to the other person for any payment
lawfully due.
2. Particular lien is a right to retain the goods only for a charge for labour employed or expenses
incurred upon the goods.
General lien is a right to retain any property belonging to the other party for a general balance of
account.

Finder of goods
Section 71 of the Contract Act provides that “a person who finds the goods belonging to another and
takes them into his possession is called the finder of goods”.

Rights of finder of goods

1. Right of lien
The finder of goods can exercise a right of lien until he receives compensation for trouble and expenses
incurred in preserving the goods and finding out the owner.
2. Right to sue for reward.
The finder can sue for any specific reward which the true owner has offered for the return of goods.
3. Right of sale
It can be exercised in the following situations;
a. If the owner cannot, with reasonable diligence, be found, or
b. The owner refuses to pay the lawful charges of the finder
c. The goods are of a perishable nature.
d. The lawful charges of the finder in respect of the goods found exceed two thirds of the total value of
goods.
4. Right to retain possession.
The finder can retain possession against the whole world except the true owner.

Liabilities of finder of goods

1. He must take reasonable care of the goods and if, the goods are destroyed, he is not responsible for
any loss.
2. He must not use the goods for his own purpose.
3. He must not mix the goods with his own goods.
4. He must try to find out the true owner of the goods. If he does not do that, he will be liable as a
trespasser.
Termination of Bailment
1. On the expiry of the period.
If the bailment is for a specific period, it terminates on the expiry of that period.
2. On the achievement of the object.
When the bailment is for a specific purpose, it terminates as soon as the purpose is achieved.
3. Inconsistent use of the goods. The bailment terminates when the bailee uses the goods in an
unauthorized way.
4. Destruction of the subject matter.
A bailment is terminated when the subject matter of the bailment is destroyed.
5. Gratuitous bailment.
A bailment can be terminated at any time in case of gratuitous bailment.
6. Death of the bailor or bailee
A gratuitous bailment is terminated by the death of either of the bailor or the bailee.
Pledge
It is a special kind of bailment. The bailment of goods as security for payment of a debt or performance of
a promise is called pledge.
Pawnor
The person who pledges the goods as security for payment of debt or performance of promise is called
pawnor or pledger.
Pawnee
The person receiving the goods as security for the paymentbof debt or performance of a promise is called
pawnee or pledge.
Essential elements of pledge
1. Delivery of goods by way of security.
2. The security is meant for the payment of a debt or performance of a contract.
3. Transfer of possession of goods, not ownership.
4. Goods are returned on repayment of debt.
5. Movable goods can be pledged, not immovable.
6. Existing goods only can be pledged.
7. It is a separate type of contract.

Duties of Pawnee

1. To take reasonable care of the goods pledged.

2. Not to make any unauthorized use of goods.
3. Not to mix goods pledged with his own goods.
4. To return goods to the pawnor.
5. To return accretions to the goods.
Rights of the pawnee

1. Right of retainer.
2. Right to extra ordinary expenses.
3. Right of retainer for subsequent advances also.
4. Right where pawnor makes default.
The pawnor makes any default, the following rights are available to the pawnee.
a. He may file a case against the pawnor upon the debt or promise and may retain the goods pledged
as a collateral security.
b. He may sell the goods pledged after giving reasonable notice to the pawnor.
c. The pawnee can recover from the pawnor any deficiency arising on the sale of the goods on default.
Rights of pawnor
1. Defaulting pawnor’s right to redeem
The pawnor has an absolute right to redeem the goods pledged, upon the satisfaction of the debt when
the time to fixed for the payment of the debt, the pawnor may redeem the goods even after the expiry of
the fixed time.
2. Preservation and maintenance of the goods
It is implied that the pawnee as a bailee is bound to preserve the goods pledged and properly maintain
them.
3. Protection as an ordinary debtor
It is also implied that pawnor has the right of protection as an ordinary debtor by statutes meant for such
protection.
4. Right to receive the increase
The pawnor has a right to receive any increase of profits from pledged goods.

Duties of Pawnor

1. Duty to repay the loan

If he fails to repay the loan, as per the terms of the contract, the pawnee may bring a legal action against
him for the recovery of the loan.
2. Duty to pay the expenses in case of default.
The pawnor must pay the expenses incurred by the pawnee due to default in repaying the loan at stipulated
time.

Pledge by non-owners
1. Pledge by a mercantile agent
A mercantile agent, who is in possession of goods or of documents of title to the goods with the consent of
the owner, can make a valid pledge while acting in the ordinary course of business as if he were expressly
authorized by owner of the goods to make the same.
The following are the conditions for the pledge to be valie;
a. The mercantile agent must be in possession of goods or documents of title to goods.
b. The possession of goods must be with the consent of the owner.
c. The goods must be in the possession of the agent in his capacity as a mercantile agent.
d. The pawnee must act in good faith and should not have notice that the pawnor has no authority to
sell.
2. Pledge by a person in possession under a voidable contract
3. Pledge where a pawnor has only a limited interest.
Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of
that interest.
4. Pledge by co-owner in possession
Where there are several joint owners of goods and goods are in the sole possession of one of the co-owners
with the consent of other co-owners, such a co-owner may create a valid pledge of that commodity.
5. Pledge by seller in possession after sale
6. Pledge by buyer in possession before payment of price.

Differences between Bailment and Pledge

Basis Bailment Pledge

Purpose It can be made for any purpose. It can be made for a specific purpose only.
Right to sell A bailee has no right to sell the goods A pledge has a right to sell the goods pledged, in
case of default by the pledgor.

Right to use the goods In the case of bailment, the bailee may use the goods bailed as per the terms of the
contract. In a pedge the pledgee has no right of using the goods.
Lien Lien with respect to labour and skills spent. With respect to principal amount and interest also.
Consideration It may or may not exist in bailment. In pledge, there is always consideration.

Differences between Pledge and Lien

Basis Pledge Lien
Origin From an agreement Out of law
Purpose To secure repayment of debt. To recover reward.
Right to sell the goods May sell the goods No right to sell
Termination When the goods are returned. When the possession is lost