UNIT – I According to the terms of Section 10 of the Act, an agreement is a valid contract if it is made by CLASSIFICATION OF CONTRACTS

The Indian Contract Act, 1872 the free consent of the parties competent to contract, for a lawful consideration and with a lawful Contracts can be classified on a number of basis. They are:
General Principles of Contract object and are not expressly declared to be void. On analysing this definition of contract, you will 1) On the basis of creation.
notice that a contract essentially consists of two elements: (i) an agreement, and (ii) its 2) On the basis of execution.
enforceability by law. 3) On the basis of enforceability.
INTRODUCTION Agreement 1) On the Basis of Creation
The law of contract is the most important branch of Mercantile Law. Without such a law it would Section 2(e) of the Contract Act defines agreement as every promise 'and every set of promises A contract may be (i) made in writing or by word of mouth or (ii) inferred from the conduct of the
be difficult, if not impossible, to carry on any trade or business in a smooth manner. The law of forming the consideration for each other. In this context a promise refer to a proposal (offer) parties or circumstances of the case. The first category of contract is termed as 'express contract'
contract is applicable not only to business but also to all day-to-day personal dealings. In fact, each which has been accepted. For example, Ramesh offers to sell his T.V. for Rs. 8,000 to Shyam. and the second as 'implied contract' '
one of us enters into a number of contracts from sunrise to sunset. When a person buys a Shyam accepts this offer. It becomes a promise and treated as an agreement between Ramesh and i) Express Contract: An express contract is one where the terms are clearly stated in words,
newspaper or rides a bus or purchases goods or gives his radio for repairs or borrows a book from Shyam. In other words, an agreement consists of an offer by one party and its acceptance by the spoken or written. For example, A wrote a letter to B stating "I offer to sell my car for Rs. 30,000
library, he is actually entering into a contract. All these transactions are subject to the provisions of other. Thus, Agreement = Offer + Acceptance. From the above analysis it is clear that there must to you", B accepts the offer by letter sent to A. This is an express contract. Similarly, when A
the law of contract. be at least two parties to an agreement, one making an offer and the otheraccepting it. No person asks a scooter mechanic to repair his scooter and the mechanic agrees, it is an express contract
The term business law refers to those rules which govern and regulate business transactions. can enter into agreement with himself. There is another important aspect relating to an made orally by spoken words.
These rules, regulations etc bring a sense of seriousness and definiteness in business dealings. agreement i.e., the parties to an agreement must have an identity ofminds in respect of the ii) Implied Contract: A contract may be created by the conduct or acts of parties (and not by
They provide for rules regarding the validity of making contracts and their performances. subject matter. They must agree on the same thing in the same sense. This is also called their words spoken or written). It may result from a continuing course of conduct of the parties.
INDIAN CONTRACT ACT, 1872 consensus-ad-idem. Suppose A has two houses, one situated in South Delhi and the other in North For example, where a coolie in uniform carries the luggage of A to be carried out of railway
In the year 1861,the third law commission of British India under the chairmanship of Sir John Delhi. He offers to sell his North Delhi house to B while B is under the impression that he is buying station without being asked by A to do so and A allows it, the law implies that A has agreed to
Romily presented the report on contract law for India.The law commission submitted a draft on the South Delhi house. Here, there is no identity of minds. Both the parties are thinking about pay for the services of the coolie. This is a case of an implied contract between A and the coolie.
28th July 1866.The draft contract law after several amendments was enacted as The Act 9 of 1872 different houses. Hence there is no agreement. Similarly, when A boards a D.T.C bus, an implied contract comes into being. A is bound to pay
on 25th April 1872 and the INDIAN CONTRACT ACT 1872 came into force w.e.f1st September Legal Obligation the prescribed fare. 'There is another category of implied contracts recognized by the Contract
1872.The Indian Contract Act, 1872 is one of the oldest in the Indian law regime, passed by the In order that an agreement may be regarded as a contract, it must give rise to a legal obligation Act known as quasi-contracts (Sections 68 to 72). Strictly speaking, a quasi-contract cannot be
legislature of pre-independence India; it received its assent on 25th April 1872. The statute i;e., it must be enforceable by law. Any obligation (duty) which is not enforceable by law is not called a contract. It is regarded as a relationship resembling that of a contract. In such a
contains essential principles for formation of contract along with law relating to indemnity, regarded as a contract. Social, moral or religious agreements do not create any legal obligation. contract the rights and obligations arise not by an agreement between the parties but by
guarantee, bailment, pledge and agency. For example, an agreement to take lunch together or to go to a picnic is not a contract because it operation of law. For example, A, a trader, left certain goods at B's house by mistake. B treated
does not create a duty enforceable by law. Such agreements are purely of a social nature where the goods as his own and consumed it. In such a situation, B is bound to pay for the goods even
WHAT IS A CONTRACT? there is no intention to create legal relationship. Hence, they do not result in contracts. , In case of though he has not asked for the goods.
Broadly speaking, a contract is an agreement made between two or more persons to do or to business agreements, however, the usual presumption is that the parties intend to create a legal
abstain from doing a particular act. A contract invariably creates a legal obligation between the relationship. For example, an agreement to sell a scooter for Rs. 8,000 is a contract because it 2. On the Basis of Execution
parties by which certain rights are given to one party and a corresponding duty is imposed on the gives rise to an obligation enforceable by law. In this agreement if there is default by either party, On the basis of the extent to which the contracts have been performed, we may classify them as
other party. The law of contract is the most important part of mercantile law in India. It an action for breach of contract can be enforced through a court of law provided all the essentials (i) executed contracts, and (ii) executory contracts.
determines the circumstances in which the promise made by the parties to a contract shall be of a valid contract are present in the agreement. i) Executed Contracts: It is a contract where both the parties have fulfilled their respective
binding on them and provides for the remedies available against a person who fails to perform his DISTINCTION BETWEEN AN AGREEMENT AND A CONTRACT obligations under the contract. For example, A agrees to sell his book to B for Rs. 30. A delivers
promise. The law of contract is contained in the Indian Contract Act, 1872, which deals with the Agreement. Contract the book to B and B pays Rs. 30 to A. It is an executed contract.
general principles of law governing all contracts 'and covers the special provisions relating to Offer and its acceptance constitute Agreement and its enforceability ,an agreement. ii) Executory Contracts: It is a contract where both the parties to the contract have still to
contracts like bailment, pledge, indemnity, guarantee and agency. Section 2(h) of the Act states anagreement. constitute a contract. perform their respective obligations. For example, A agrees to sell a book to B for Rs. 30. If the
that an agreement enforceable by law is a contract. Let us discuss these two elements in detail. book has not been delivered by A and B has not paid the price. the contract is executory.
An agreement may not create a legal A contract necessarily creates alegal obligation.
Every contract thus combines two essential elements(i)agreement and (ii)obligation.It creates A contract may sometimes be partly executed and partly executory. It happens where only oneof
obligation.
rights and obligations between the parties to the contract which are correlative,in casea party the parties has performed his obligation. In the example given above, if A has delivered thebook
Every agreement may not be a All contracts are agreements.
refuses to honor a contacted obligation it will give right of action to other party. to B but B has not paid the price. the contract is executed as to A and executory as to B. On the
contract
Agreement is not a concluded or a Contract is concluded and binding on the basis of execution, a contract can also be classified as unilateral or bilateral. A unilateralcontract
bindingcontract. concerned parties is one in which only one party has to perform his obligation, the other party hadfulfilled his
. part of the obligation at the time of the contract itself. For example, A buvs a ticketfrom the
conductor and is waiting in the queue for the bus. A contract is created as soon as the

ticket is purchased. The other party is now to provide a bus wherein he could travel. 'A bilateral Void Agreement Voidable Contract arbitration agreement must be in writing. It is important to note that in most cases, such ,
contract is one in which the obligations on the part of both the parties are outstanding at the time It is void from the very beginning. It remains valid till it is repudiated contracts can be enforced if the technical defect involved is removed. For example, if the
of the formation of the contract. by the aggrieved party. document which embodies a contract is under stamped, it will become enforceable if the requisite
3. On the Basis of Enforceability A contract is void if any essentialelement of a A contract is voidable if the consent stamp is affixed.
From the point of view of enforceability a contract may be (i) valid, (ii) void, , (iii) voidable, (iv) valid contract (otherthan free consent) is of a party is not free.
illegal or (v) unenforceable. missing. Void Illegal
i) Valid Contract: A contract which satisfies all the conditions prescribed by law is a valid It cannot be enforced by any party. If the aggrieved party so decides,the contract All void agreements are not necessarily illegal. 1) All illegal agreements are void.
contract. If one or more of these elements is/are missing, the contract is either void, voidable, may continue to bevalid and enforceable.
illegal or unenforceable. Third party does not acquire anyrights. An innocent party in good faithand for Collateral transactions to a void agreements ) Collateral transactions to an illegal
ii) Void Contract: According to Section 2 (j) A contract which ceases to be enforceable by law consideration acquires goodtitle before the are not affected i.e.,they do not become void. agreements are also affected i.e they also
becomes void when it ceases to be enforceable. It is a contract without any legal effects and is a contract is avoided. become void.
nullity. You should note that a contract is not void from its inception. It is valid and binding Lapse of time will not make it avalid contract, If it is not avoided withinreasonable time, it If a contract becomes void subsequently, the The money advanced or thing given cannot be
upon the parties when made, but subsequent to its formation, due to certain reasons, it it always remains void. may become valid. benefit received has to be restored to the claimed back.
becomes unenforceable and so treated as void. A contract may become void due to Question of damages does not arise. The aggrieved party can also claimdamages. other party.
impossibility of performance, change of law or some other reasons. For example, A promised to iv) Illegal or unlawful contract: The word illegal means contrary to law. You know that contract
marry B. Later on, B dies. This contract becomes void on the death of B. A void contract should is an agreement enforceable by law and therefore, it cannot be illegal. It is only the agreement ESSENTIALS OF A VALID CONTRACT
be distinguished from void agreement. Section 2(g) says that an agreement nor enforceable by which can be termed as illegal or unlawful. Hence, it is more appropriate to use the term 'illegal An agreement enforceable by law is a contract. An agreement in order to be enforceable must
law is said to be void. In the case of void agreement no contract comes into existence. Such an agreement' in place of 'illegal contract'. have certain essential elements. According to Section 10 - All agreements are contracts if they are
agreement confers no rights on any person and creates no obligations. It is void ab-initio i.e., An 'illegal agreement' is one which has been specifically declared to be unlawful under the made by the free consent of the parties competent to contract, for a lawful consideration and with
from the very beginning. For example an agreement with a minor is void because a minor is provisions of the Contract Act or which goes against the provisions of any other law of the land. a lawful object, and are not hereby expressly declared to be void. Thus, an agreementbecomes a
incompetent to contract. Such agreement cannot be enforced by law. For example, A agrees to pay R;. 50,000 to B if B kills valid contract if it has the following elements.
Now it should be clear to you that a void agreement is not the same thing as a void contract. A C. This is an illegal agreement because its object is unlawful. Even if B kills C, he cannot claim the 1) Proper offer and its proper acceptance
void agreement never matures into a contract, it is void from the very beginning. A voidcontract, agreed amount from A. 2) Intention to create legal relationship
on the other hand, was valid when it was entered into, but subsequently, because of one reason or The term 'illegal agreement' is wider than the term 'void agreement'. All illegal agreements are 3) Free consent
the other, became void. A contract cannot be void ab-initio, it is only an agreement which can be void but all void agreements are not necessarily illegal. For example, an agreement to sell a 4) Capacity of parties to contract
void ab-initio. scooter to the minor i,e void but it is not illegal because the object of this agreement is not 5) Lawful consideration
iii) Voidable Contract: According to Section 2(i) of the Contract Act, An agreement which is unlawful. The other important difference between the illegal and the void agreement relates to 6) Lawful object .
enforceable by law at the option of one or more of the parties thereon, but not at the option of their effect on the transactions -which are collateral to the main agreement. In case of illegal 7) Agreement not expressly declared void
the other or others, is a voidable contract. Thus, a voidable contract is one which can be set agreements even the collateral agreements become void. For example, A engages B to shoot C. To 8) Certainty of meaning
aside or repudiated at the option of the aggrieved party. Until it is set aside or avoided by the pay B, A borrows Rs. 10,000 from D who is aware of the purpose of the loan. In this case, there are 9) Possibility of performance
party entitled to do so, it remains a valid contract. A contract is usually treated as voidable two agreements - one between A and B and the other between A and D. Since the main 10) Legal formalities
when the consent of a party has not been free i.e., it has been obtained either by coercion, agreement between A and B is illegal, the agreement between A and D ,which is collateral to the
undue influence, misrepresentation or fraud. The contract is voidable at the option of the party main agreement, is also void. D cannot recover the money from A. Take another example. A Let us now discuss these essential elements one by one.
whose consent has been so caused. For example, A threatens to shoot B if he does not sell his borrows money from D to pay off his wagering (betting) debts to B. Here the main agreement is 1) Proper offer and proper acceptance: In order to create a valid contract it is necessary that
new scooter to A for Rs. 5,000. B agrees. Here the consent of B has been obtained by coercion. void (not illegal). Hence the agreement between A and D being a collateralagreement shall not be there must be at least two parties, one making the offer and the other accepting it. The law has
Hence, the contract is voidable at the option of B, the aggrieved party. If, however, B does not affected even though D was aware of the purpose of the loan. From these examples, it should be prescribed certain rules for making the offer and its acceptance that must be satisfied while
exercise his option to set aside the contract within a reasonable time and if in the meanwhile a clear to you that the agreements collateral to the illegal agreements are also void but the entering into an agreement. For example, the offer must be definite and duly communicated to
third party acquires a right in relation to the subject matter for some consideration, the transactions collateral to void agreements are not affected in any way, they remain valid. the other party. Similarly, the acceptance must be unconditional and communicated to the
contract cannot be avoided. For example, A obtains a ring by fraud. Here, B's consent is not free v) Unenforceable contract: It is a contract which is actually valid but cannot be enforced offerer in the prescribe mode, and so on. Unless such conditions with regard to the offer and
and therefore he can cancel this contract. But if, before this option is exercised by B, A sells the because of some technical defect. This may be due to non-registration of the agreement, non- the acceptance are satisfied the agreement does not become enforceable.
ring to C' who acquires it after paying the price and in good faith, contract cannot be avoided. payment of the requisite stamp fee, etc. Sometimes, the law requires a particular agreement to 2) Intention to create legal relationship: There must be an intention among the parties to
be in writing. If such agreement has not been put in writing, it becomes unenforceable. For create a legal relationship, If an agreement is not capable of creating a legal obligation it is not a
example, an oral agreement, for arbitration are unenforceable because the law requires that an contract. In case of social or domestic agreements, generallv there is no intention to create
legal relationship. For example, in an invitation to dinner there is no intention to create legal consideration must be real i.e., it must have some value in the eyes of law. However, the After discussing the essential elements of a valid contract, it is now clear that all these elements
relationship and therefore, is not a contract. Similarly, certain agreements between husband and consideration need not be adequate. For example, A sells his car worth Rs. 50,000 to B for Rs. must be present in an agreement so that it becomes .a valid contract. If any one of them is missing
wife do not become contracts because there is no intention to create legal relationship. This point 10,000 only. This is a valid promise provided the consent of A is free. . or absent, the agreement will not be enforceable by law.
can well be illustrated by the famous case of Balfour v. Balfour. Mr. Balfour had promised to pay For a contract to be valid, the consideration.should also be lawful. The consideration is considered OFFER
£30 per month to his wife living in England when she could not accompany him to Caulon where he lawful unless it is forbidden by law, or is fraudulent, or involves or implies injury to the person or For making a valid contract there must be a lawful offer and a lawful acceptance of that offer. An
was employed. Mr. Balfour failed to pay the promised amount. Mrs. Balfour filed a suit against property of another; or is immoral, or is opposed to public policy (Section 23). offer is also called ‘proposal'. The words 'proposal' and 'offer' are synonymous and are used
her husband for breach of this agreement.It was held that she could not recover the amount as it 6) Lawful object: The object of an agreement must be lawful. An agreement made for any act interchangeably. Section 2(a) defines the term 'proposal' as follows:
was a social agreement and the parties never intended to create any legal relations. which is prohibited by law will not be valid. For example, if A rents out a house for use as a "When one person signifies to another his willingness to do or to abstain from doing anything,
In commercial. or business transactions the usual presumption is that the parties intend to create gambling den, the agreement is void because the object of the agreement is unlawful. If the with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
legal relations. However, this presumption may be negated by express terms to the contrary. The object is unlawful for any of the reasons mentioned in Section 23, the agreement shall be void, proposal. "
case of Rose & Frank Co. v. Crompton Brothers is relevant here. In this case there was an Thus, the consideration as well as the object of the agreement should be lawful. From the above definition of offer you will notice that an offer involves the following elements.
agreement between Rose & Frank Company and Crompton Brothers Ltd. whereby the former was 7) Agreement not expressly declared void: The agreement must not have been expressly i) It must be an expression of readiness or willingness to do or to abstain from doing something.
appointed as selling agents in North America. One of the clauses in the agreement read, "This declared void under Contract Act. Sections 24 to 30 specify certain Thus, it may involve a 'positive' or a 'negative' act. For example, A offers to sell his book to B for
agreement is not entered into as a formal or legal , agreement and shall not be subject to legal types of agreements which have been expressly declared void. They are . agreement in restraintof Rs. 30. A is making a proposal to do something i.e., to sell his book. It is a positive act on the
jurisdiction in the law courts." It was held, that this agreement was not a legally binding contract marriage, agreement in restraint of legal proceedings, agreement in restraint of trade and part of the proposer A. On the other hand, when A offers not to file a suit against B if the latter
as there was no intention to create legal relations. agreement by way of' wager. For example, A agreed to pay Rs. 1,000 to B if he (B) does not pays A the outstanding amount of Rs. 1,000, the act of A is a negative one i.e., he is offering to
You must note that whether intention to create legal relationship exists in an agreement or not is a marry throughout his life. B promised not to marry at all. This agreement shall not be valid abstain from filing a suit.
matter for the court to decide which may look at the terms and conditions of the agreement and because it is in restraint of marriage which has been expressly declared void under Section 26. You ii) It must be made to another person. There can be no 'proposal' by a person to himself,
the circumstances under which the agreement was made should note that if an agreement possesses all other essential elements of a valid contractbut iii) It must be made with a view to obtain the assent of that other person to such act or
3) Free consent: For a contract to be valid, it is essential that there must be free and genuine belongs to the category of such agreements that have been expressly declared void by the abstinence. Thus a mere statement of intention- "I may sell my furniture if I get a good price" is
consent of the parties to the contract. They must have made the contract of their own free will Contract Act, no power on earth can make it a valid contract. not a proposal.
and not under any fear or pressure. According to Section 14, consent is said to be free when it 8) Certainty of meaning: Section 29 of the Contract Act provides that Agreements, the meaning The person making the offer is called the 'offerer' or the 'promisor' and the person to whom itis
is not caused by (i) coercion,' (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) of which is not certain or capable of being made certain, are void. Thus to make a valid contract made is called the 'offeree'. When the offeree accepts the offer, he is called the 'acceptor' or the
mistake. In case the consent is obtained by any of the first four factors, the contract would be it is absolutely essential that its terms must be clear and not vague or uncertain. For example, A 'promisee'. For example, Ram offers to sell his scooter to Prem for Rs. 10,000 This is an offer by
voidable at the option of the aggrieved party. But if the agreement is induced by mutual agreed to sell 100 tonnes of oil to B. Here it is not clear what kind of oil is intended to be sold. Ram. He is the offerer or the promisor. Prem to whom the offer has been made is the offeree and
mistake which is material to the agreement, it would be void. Therefore, this agreement is not valid on the ground of uncertainty. If, however, the meaning of if he agrees to buy the scooter for Rs. 10,000 he becomes the acceptor or the promisee.
4) Capacity of parties: The parties to an agreement must be competent to contract i.e., they the agreement could be made certain from the circumstances of the case, it will be treated as a Express or Implied Offer
must be capable of entering into a contract. If any party to the contract is not competent to valid contract. In the example given above if we know that A and B are dealers in mustard oil An offer may either be an 'express offer' or an 'implied offer'
contract, the contract is not valid. Now the question arises as to who are competent to only, then the agreement shall be enforceable because the meaning of the agreement could be Express Offer: When an offer is made by words, spoken or written, it is termed as an express offer.
contract? Answer to this question is provided by Section 1 I of the Act which says that every easily ascertained from the circumstances of the case. When A says to B that he wants to sell his book to B for Rs. 20, it is an express offer. Similarly,
person is competent to contract who is of the age of majority according to the law to which he 9) Possibility of performance: The terms of the agreement must also be such as are capable of when A writes a letter to B offering to sell his car to him for Rs. 40,000, it is also an express offer by
is subject and who is of sound mind, and is not disqualified from contracting by any law to performance. An agreement to do an act impossible in itself is void (Section 56.) If the act is A. The oral offer may be made either in person or over telephone. Section 9 of the Contract Act
which he is subject. Hence in order to be competent to enter into a contract, the person should impossible of performance, physically or legally, the agreement cannot be enforced by law. The reads: "In so far as the proposal or acceptance of any promise is made in words, the promise is said
be a major (adult), should be of sound mind and he must not be declared disqualified from reasoning is very simple. For example, A promises to B that he will run at a speed of 200 kms. to be express. "
contracting by any law to which he is subject. Thus, the flaw in capacity may be due to minority, per hour or that he will bring gold from the sun. All these acts are such which are impossible of Implied Offer: It is an offer which is not made by words spoken or written. An implied offer is one
lunacy, idiocy, etc. If a party to a contract suffers from any of these flaws, the agreement, with performance and therefore the agreement is not treated as valid. which is inferred from the conduct of a person or the circumstances of the particular case. For
a few exceptions, is not enforceable at law. 10) Legal formalities: You have learnt that an oral agreement is as good as is a written example, public transport like DTC in Delhi or BEST in Bombay runs buses on different routes to
5) Lawful consideration: An agreement must be supported by consideration. Consideration agreement. The Contract Act does not require that a contract must be in writing to be valid. carry passengers who are prepared to pay the specified fare. This is an implied offer. Similarly,
means something in return. It is also defined as the price paid by one party to buy the promise But, in some cases the Act has specified that the agreement must be made in writing. For when a coolie picks up your luggage to carry it from railway platform to the taxi, it means that the
of the other. However, this price need not always be in terms of money. For' example, A agrees example, a promise to pay a time barred debt must be in writing and an agreement for a sale of coolie is offering his service for some payment. This is an implied offer by the coolie. Section 9 says
to sell his book to B for Rs. 20. Here the consideration for A is Rs. 20, and for B it is the book. immovable property must be in writing and registered under the Transfer of Property Act, that "In so far as such proposal or acceptance is made otherwise than in words, the promise is said
The consideration may be an act (doing something) or forbearance (not doing something) or a 1882. In such a situation, the agreement must comply with the necessary formalities as to to be implied.
promise to do or not to do something, The consideration may be past, present or future, writing, registration, etc. If these legal formalities are not carried out, then the contract is not
enforceable by law.

General or Specific Offer offer there is no intention on the part of the person sending out the invitation to obtain the assent want to conclude a contract, at least one of them must send his acceptance to the offer made by
An offer may be 'specific' or 'general'. When an offer is made to a definite person or particular of the other party to such invitation. On the other hand, offer is a final expression of willingness by the other.
group of persons, it is known as specific offer and it can be accepted only by that definiteperson the offerer to be bound by his promise, should the other party choose to accept it. In case of an Standing Offers
or that particular group of persons to whom it has been made. For example, A offeredto buy invitation to offer, his aim is to merely circulate information of his readiness to negotiate business Sometimes an offer may be of a continuous nature. In that case it is known as standing offers, A
certain goods from B at a certain price. This offer is made to a definite person B. Therefore, if with anybody who on such information comes to him. An invitation to offer is not an offer in the standing offer is in the nature of a tender. Sometimes a person or a department or some other
goods are supplied by P, it will not give rise to a valid contract (Boultan v. Jones). On the other eyes of law and does not become a promise on acceptance. body requires certain goods in large quantities from time to time. In such a situation, it usually
hand, if an offer which is not made to a definite person, but to the world at large or public in You must have noticed that shopkeepers generally display their goods in showcases with pride gives an advertisement inviting tenders.
general, it is called a general offer. A general offer can be accepted by any person by fulfilling the tags attached. The shopkeeper in such cases is not making an offer so that you can accept it. He is An advertisement inviting tenders is not an offer but a mere invitation to offer. It is the person
terms of the offer. Offers of reward made by way of advertisement for finding lost articles is the in fact inviting you to make an offer which he may or may not accept. You cannot compel the submitting the tender to supply goods or services who is deemed to have made the offer, when a
most appropriate example of a general offer. For example, B issues a public advertisement to the shopkeeper to sell the goods displayed in the showcase at the market price. Similarly, quotations, particular tender is accepted or approved, it becomes
effect that he would pay Rs. 100 to anyone who brings hack his missing dog. This is a general offer catalogues, price list, advertisements in a newspaper for sale or a circular sent to prospective a standing offer. The acceptance or approval of a tender does not however, amount to acceptance
and any member of the public can accept the said offer by finding the lost dog. buyers do not constitute an offer. Similarly, a prospectus issued by a company for subscription to of the offer. It simply means that the offer will remain open during a specified period and that it
Legal Rules for a Valid Offer its shares by the members of the public is only an invitation to offer. will be accepted from time to time by placing specific orders for the supply of goods. Thus each
An offer or proposal made by a person cannot legally be regarded as an offer unless it satisfies the 5) The offer must be communicated: An offer must be communicated to the person to whom it order placed creates a separate contract. The offerer can however withdraw his offer at any time
following conditions. is made. It means that an offer is complete only when it is communicated to the offeree. You before an order is placed with him. Similarly, the party who has accepted the tender is also not
1) Offer must intend to create legal relations: An offer will not become a promise even after it should note that a person can accept the offer only when he knows about it. In the case of Fitch bound to place any order unless there is an agreement to purchase a specified quantity. For
has been accepted unless it is made with a view to create legal obligations. It is so because the v. Snedakar, S offered a reward to anyone who returns his lost dog. F brought the dog without any example,
very purpose of entering into an agreement is to make it enforceable in a court of law. A mere knowledge of the offer of reward. It was held that F was not entitled to the reward because F A agrees to supply coal of any quantity to B at a certain price as will be ordered by B during the
social invitation cannot be regarded as an offer because if such an invitation is accepted it will cannot be said to have accepted the offer which he was not aware of. period of 12 months. It is a standing offer. Each order given by B will be an acceptance of the offer
not give rise to any legal relationship. For example, A invites his friend B to a dinner and B 6) Offer should not contain a term the non-compliance of which would amount to and A will be bound to supply the ordered quantity of coal. A can however, revoke the offer for
accepts the invitation. If B fails to turn up for dinner, A cannot go to the court to claim his loss. acceptance: The offer should not impose on the offeree an obligation to reply. While making future supplies at any time by giving a notice to the offeree.
In social agreements the presumption is that the parties do not intend to create legal the offer the offerer cannot say that if the offer is not accepted before a certain date it will be ACCEPTANCE
relationship( Balfour vs Balfour). presumed to have been accepted. Unless the offeree sends his reply, no contract will arise. For When an offer is accepted, it results in an agreement. Acceptance is an expression by the offeree
2)Terms of offer must be certain, definite and not vague: No contract can be formed if the example, A .writes to B "I offer to sell my scooter to you for Rs. 7,000. If I do not receive a reply of his willingness to be bound by the terms of the offer. This results in the establishment of legal
terms of the offer are vague, loose and indefinite. The reason is quite simple. When the offer by Wednesday next, I shall assume that you have accepted the offer." If B does not reply, it relations between the offerer and offeree. Section 2(b) of the Indian Contract Act defines the term
itself is vague or loose or uncertain, it will not be clear as to what exactly the parties intended shall not imply that he has accepted the offer. Hence, there will be no contract. 'acceptance' as "when the person to whom the proposal is made signifies his assent thereto, the
to do. A vague offer does not convey what it exactly means. For example, A promises to buy 7) Special terms or conditions in an offer must also be communicated: The offerer is free to lay proposal is said to be accepted. A proposal when accepted becomes a promise. " For example, A
one more horse from B if the horse purchased earlier proves lucky. This promise cannot be down any terms and conditions in his offer, and if the other party accepts the offer then he will offers to sell his book to B for Rs. 20. B agrees to buy the book for Rs. 20. This is an acceptance of
enforced because it is loose and vague. If, however, the terms of the offer are capable of being be bound by those terms and conditions. The important point is that if there are some special A's offer by B.
made certain, the offer is not regarded as vague. For example, A offers to sell to B "a hundred 4 terms and conditions they should also be duly communicated, The question of special terms Legal Rules for a Valid Acceptance :The acceptance of an offer to be effective must fulfil certain
quintals of oil". The offer is uncertain as there is nothing to show what kind of oil is intended to arises generally in case of standard form of contracts. For example, the Life Insurance conditions. These are:
be sold. But, if A is a dealer in coconut oil only, it is Corporation of India has printed form of contracts containing large number of terms and 1) Acceptance must be absolute and unqualified : Section 7 (1) of the Indian Contract Act
quite clear that he wants to sell coconut oil. Hence, his offer is not vague. It is a valid offer. conditions. Similarly, standard contracts are made with railways, shipping companies, banks provides that 'In order to convert a proposal into a promise, the acceptance must be absolute
3) The offer must be distinguished from a mere declaration of intention: Sometimes a person etc. If the terms and conditions in a standardized contract are unreasonable, then the other and unqualified . This is so because a qualified and conditional acceptance amounts to a
may make a statement without any intention of creating a binding obligation. Such statement party will not be bound by them. For example, if a drycleaner limits his liability to 20 per cent of counter offer leading to the rejection of the original offer. No variation should be made by the
or declaration only indicate that he is willing to negotiate and an offer will be made or invited in the market price of the article in case of loss, the customer will not be bound by this conditions offeree in the terms of offer. If while giving acceptance, any variation is made in the terms of
future. For example an auctioneer advertised in a newspaper that a sale of office furniture will because it means that the drycleaner can purchase garments at 20 per cent of their price. the offer the acceptance will not be valid and there will be no contract. For example, A offers to
be held on a certain date. A person with the intention to buy furniture came from a distant Cross Offers sell his scooter to B for Rs. 8,000 and B agrees to buy it for Rs. 7,500. It is a counter offer and
place for the auction, but the auction was cancelled. He cannot file a suit against the auctioneer Two offers which are similar in all respects, made by two parties to each other, in ignorance of not an acceptance. If, later on, B is ready to pay Rs. 8,000 A is not bound to sell his scooter,
for his loss of time and expenses because the advertisement was merely a declaration of each other's offer are known as 'cross offers". Cross offers do not amount to acceptance of one's because E's counter offer has put an end to the original offer.
intention to hold auction, (Harris v. W Nieversion). offer by the other and as such no contract is concluded. For example, A of Delhi, by a letter offers Further an offer must be accepted in toto. If only a part of the offer is accepted the acceptance will
4) Offer must be distinguished from an invitation to offer: An offer must be distinguished from to sell his house to B of Bombay for Rs. 10 lakh. At the same time B of Bombay also makes an offer not be valid. For example, G offers to sell 10 quintals of wheat to B at a certain price. B accepts to
an invitation to receive an offer or to make an offer or to negotiate. In the case of invitation to to A to buy A's house for Rs. 10 lakh. The two letters cross each other. There is no concluded buy 70 quintals only. It is not a valid acceptance since it is not for the whole of the
contract between A and B because both the parties are making offers. If they
offer. Thus, an offer should be accepted as it is, without any reservations, variations or conditions. be accepted. For example, A offered, by a letter, to sell his car to B for Rs. 40,000. Subsequently, A 4) Minor's contract jointly with a major person: Documents jointly executed by a minor and an
Any variation, howsoever unimportant it may be, makes the acceptance invalid. withdraws his offer by a telegram, which was duly received by B: After the receipt of the telegram, adult major person would be void vis-a-vis the minor. But they can be enforced against the
2) Acceptance must be in the prescribed manner : Where the offerer has prescribed a mode of B sends his acceptance to A. This acceptance is not valid. major person who has jointly executed the same provided there is a joint promise to pay by
acceptance, it must be accepted in that very manner. If the offer is not accepted in the Contractual Capacity/ Competence of Parties such a major person (Jumna Bai v. VasaaataRino).
prescribed manner it is up to the offerer to accept or reject such acceptance. But when the Section 11 of the Indian Contract Act clearly states as to who shall be competent to contract. It 5) Minor as a partner: A minor cannot be a partner in a partnership firm. However, a minor
acceptance is not in the prescribed manner and the offerer wants to reject it, he must inform provides that every person is competent to contract (i) who is of the age of majority according to may, with the consent of all the partners for the time being, be admitted to the benefits of
the acceptor within a reasonable time that he is not bound by acceptance since it is not in the the law to which he is subject, ( ii) who is of sound mind, and (iii) who is not disqualified from partnership (Section 30 of the Partnership Act, 1932). This means he can share the profits
prescribed manner. If he does not do so within a reasonable time, he will be bound by the contracting by any law to which he is subject. Thus, a person to be competent to contract should without incurring any personal liability for losses.
acceptance. For example, A makes an offer to B and says "send your acceptance by telegram". B not be 6) Minor as an agent: A minor can act as an agent and bind his principal by his acts without
sends his acceptance by a letter. A can refuse this acceptance on the ground that it was not i) a minor, or incurring any personal liability.
accepted in the prescribed manner. But, if A fails to inform B within a reasonable time he will ii) of an unsound mind, or 7) Minor as a shareholder: There has been a strong controversy as to whether a minor can
be deemed to have accepted the acceptance by ordinary letter and it will result in the iii) disqualified from contracting. become a shareholder/member of a company. In view of the provisions of the Indian Contract
formation of a valid contract: If, however, no mode has been prescribed, it should be accepted Agreements by a Minor Act and the Privy Council's decision, a minor cannot become a member of the company
in some usual and reasonable manner. According to Section 11, as stated earlier, no person is competent to contract who is not of the age (Palaniaga v. Pnsupati Bank). Thus, if a minor acquires partly paid shares the company will not
3) Acceptance must be communicated: Acceptance should be signified. In other words, the of majority. In other words, a minor is not competent to contract. In fact, the law acts as the be able to recover . the uncalled amount from the minor. However, there are contrary decisions
acceptance is complete only when it has been communicated to the offerer. A mere mental guardian of minors and protects their rights because they are not mature and may not possess the wherein it has been held that a minor can become a subscriber to the memorandum of
acceptance, not evidenced by words or conduct, is no acceptance. In Brogen v. Metropolitan capacity to judge what is good and what is bad for them. Hence the minor is not bound by any association and can acquire shares by allotment. In Laxon Co.'s case, it was held that a minor
Railway Co.'s case an offer to supply coal to the railway Co. was made. The manager wrote on promises made by him under an agreement. can be a shareholder unless the articles of association OF the company prohibit it. In Dewan
the letter 'accepted', put it in his drawer and forgot all about it. It was held that no contract was The position with regard to minor's contracts may be summed-up as follows: Singh v. Minewe Films Ltd., the Punjab High Court held that there was no legal bar to a minor
made because acceptance was not commumicated. 1) Contract with or by a minor is absolutely void and the minor therefore cannot bind himself becoming a member of a company by acquiring shares (i.e., by way of transfer) provided the
Communication of acceptance does not mean that the offerer must come to know about the by a contract: The Privy Council in the case of MohiriBibee v. DharmodasGhosh held that a shares were fully paid up and no further obligation or liability was attached to them. It may thus
acceptance. Even if the letter of acceptance is lost in transit or delayed, the offerer is bound by the minor's agreement is altogether void. The facts of the case were: Dharmodas a minor, entered be concluded that a minor can become a shareholder/ member of a company provided that the
acceptance because the acceptor has done all that is required of him. into a contract for borrowing a . sum of Rs. 20,000. The lender advanced Rs. 8,000 to him and shares held by him are fully paid shares and the articles of association do not prohibit it.
4) Acceptance must be communicated by a person who has the authority to accept: For an Dharmodas executed a mortgage of his property in favour of the1ender. Subsequently, the AGREEMENTS BY PERSONS OF UNSOUND MIND
acceptance to be valid it should be communicated by the offeree himself or by a person who minor sued for setting aside the mortgage. The Privy Council held that sections 10 and 11 of the Who is a person of sound mind has been amply clarified by Section 12 of the Indian Contract
has the authority to accept. Thus, if acceptance is communicated by an unauthorised person, it Indian Contract Act make the minor's contract void and therefore the mortgage was not valid. Act which reads a person is said to be of sound mind for the purpose of making a contract, if at the
will not give rise to legal relations. The case of Powell v. Lee can be mentioned in support of this Then, the mortgagee, prayed for refund ' of Rs. 8,000 by the minor. The privy council further time when he makes it, he is capable of understanding it and of forming a rational judgement as to
point. In this case P applied for the post of a headmaster in a school. The managing committee held that as a minor's contract was void, any money advanced to him could not be recovered. its effect upon his interests.
passed a resolution appointing P to the post but this decision was not communicated to P. 2) Fraudulent representation by a minor: Will it make any change in case minor is guilty of Position of Agreements by Persons of Unsound Mind
However, a member of the managing committee, in his individual capacity and without any deliberate misrepresentation about his age thereby inducing the other party to contract with 1) Lunatics: A lunatic is a person who is mentally deranged due to some mental strain or other
authority, informed P about the decision. Subsequently, the managing committee cancelled its him? No! it will make no change in the status of the agreement. The contract shall continue to persona1 experience. However, he has some intervals of sound mind. He is not liable for
resolution and appointed someone else. P filed a suit for breach of contract. It was held that he remain void because if such a thing is permitted, unscrupulous people while dealing with a contracts entered into while he is of unsound mind. However, as regards contracts entered into
was not informed about his appointment by some authorised person, hence there was no minor shall, as a first thing, ask him to sign a declaration that he is of the age of majority. It will during lucid intervals, he is bound. His position in this regard is identical with that of a minor.
communication of acceptance. thus defeat the whole objective of protecting his interests. 2) Idiots: An idiot is a person who is permanently of unsound mind. Idiocy is a congenital
5) Acceptance must be made within the time prescribed or within a reasonable time: In the case Leslie v. Sbeill. S, a minor by fraudulently representing himself to be a major,induced L defect. Such a person has no lucid intervals. He cannot make a valid contract. In Inder Singh v.
Sometimes the offerer while making the offer fixes the period within which the offer should be to lend him f 400. He refused to repay it and L sued him for the money. Held, that the contract was Parmeshwardhari Singh a property worth about Rs. 25,000 was agreed to be sold by a person
accepted. In such a situation, the acceptance must be given within the prescribed time and if no void and S was not liable to repay the amount due. But, should it mean that those younger in age for Rs. 7,000 only. His mother proved that he was a congenital idiot, incapable of understanding
time is prescribed, it should be . accepted within a reasonable time. What is the reasonable have liberty to cheat the seniors and retain the benefits. Sections 30 and 33 of the Specific Relief the transaction. Held the sale to be void.
time depends upon the facts of the case. Where an offer to buy shares of a company was made Act. 1963 provide that in case of a fraudulent misrepresentation f his age by the minor, inducing 3) Drunken Persons: Drunkenness is on the same footing as lunacy. A contract by drunken
in June but the acceptance was communicated in November, it was held that because the other party to enter into a contract, the court may award compensation to the other party. person is altogether void. It should be noted that partial or ordinary drunkenness is not
acceptance was not give within a reasonable time the offer had elapsed. (Ramagate Victoria 3) Ratification of a contract by minor on attaining the age of majority: A minor's agreement is sufficient to avoid a contract. It must be clearly shown that, at the time of contracting, the
Hotel Co. v. Montefiore). void ab-initio. Hence, there can be no question of its being ratified even after he attains person pleading drunkenness was so intoxicated as to be temporarily deprived of reason and
6) Acceptance must be given before the offer lapses or is withdrawn: The acceptance must be majority. was not in a position to give valid consent to the contract.
given while the offer is in force. Once an offer has been withdrawn or stands lapsed, it cannot

PERSONS DISQUALIFIED BY LAW COERCION directed against the promisor or any other person in whose welfare the promisor is interested, the
Besides minors and persons of unsound mind, there are some other persons who have been Coercion means forcibly compelling a person to enter into a contract i.e., the consent of the party consent will not be free. For example, A threatens to kill B's son C if B refuses to sell his car to him.
declared incompetent of contracting, partially or wholly, so that the contracts of such persons are is obtained by use of force or under a threat. Section 15 of the Contract Act defines 'coercion' as Here, the threat is directed against C (B's son). So, the consent is treated as induced by coercion.
void. Incompetency to contract may arise from political status, corporate status, legal status, etc. Coercion is (i) the committing or threatening to commit, any act forbidden by the Indian Penal Similarly, it ia not necessary that the threat should come from a party to the contract, it may come
Alien Enemy: An alien is a person who is the citizen of a foreign country. Thus, in the Indian Code; or (ii) the unlawful detaining or threatening to detain, any property, to the prejudice of any from a stranger.
context an alien may be (i) an alien friend, or (ii) an alien enemy. person whatever, with the intention of causing any person to enter into an agreement. Let us now UNDUE INFLUENCE
In the case of contracts with an alien enemy (i.e., an alien whose country is at war with India) the analyse the implications of this definition. The second factor which affects consent and makes it unfree, is undue influence. The term 'undue
position may be studied under two heads: (i) contracts during the war and (ii) contracts made 1) Committing any act forbidden by the Indian Penal Code : When the consent of a person is influence' means the improper or unfair use of one's superior power in order to obtain the consent
before the war. During the subsistence of the war, an alien can neither contract with an Indian obtained by committing any act which is forbidden by the Indian Penal Code, the consent is said of a person who is in a weaker position. Section 16 (i) of the Contract Act defines undue influence
subject nor can be sued in an Indian Court except by licence from the Central Government. As to be obtained by coercion. Committing a murder, kidnapping, causing hurt, rape, defamation, as 'A contract is said to be induced by undue influence' where the relations subsisting between the
regards contracts entered' into before the war breaks out, they are either dissolved or merely theft etc. are some of the examples of the acts forbidden by the Indian Penal Code. For parties are such that one of the parties is in a position to dominate the will of the other and uses
suspended. All contracts, which are against the public policy or are such that may benefit the example, A beats B and compels him to sell his scooter for Rs. 2,000. In this case the consent of that position to obtain an unfair advantage over the other.
enemy, stand dissolved. The contracts which are not against public policy are merely suspended B is induced by coercion. If we analyse this definition, two essentials of undue influence become clear :
for the duration of the war and revived after the war is over, provided they have not already 2) Threatening to commit any act forbidden by the Indian Penal code : From the definition you i) the relations subsisting between the parties should be such that one of them is in a position
become time-barred under the law of limitations. will observe that not only the committing of an act forbidden by the Indian Penal Code amounts to dominate the will of the other, and
Convicts: A convict is not competent to contract during the continuance of sentence of to coercion but even a threat to commit such act amounts to coercion. Thus, a threat to shoot, ii) the dominant party should have used that position to obtain an unfair advantage over the
imprisonment. This inability comes to an end with the expiration of the period of sentence. A to murder, to kidnap or to cause bodily injury will amount to coercion. other.
convict can, however, enter into, or sue on, a contract when on parole or when he has been 3) Unlawful detaining of any property : If a person unlawfully detains the property of another Both the characteristics must be present simultaneously. The presence of one without the other
pardoned by the court. person and compels him to enter into a contract with him, the consent is said to be induced by will not invalidate the contract on the ground of undue influence.
Company under the Companies Act or Statutory Corporation under special Act of Parliament: A coercion. For example, an agent refused to hand over the account books of the principal to the A, a lady gifted all her property to B, her spiritual guru so that she may secure benefits to her soul
company or a corporation is an artificial person. It exists only in contemplation of law, its new agent appointed in his place unless the principal released him from all liabilities. The in next world. Later on, she disputed the validity of the gift deed. Here, the spiritual guru was in a
contractual capacity, is determined by its constitution. The contractual capacity of a statutory principal had to give a release deed as demanded. It was held that the release was not binding position to dominate the will of his disciple A and by using his strong position obtained an unfair
corporation is expressly defined by the statute creating it. The contractual capacity of a company because the consent of the principal was obtained by exercising coercion (Muthia v. Karuippan). advantage. Hence, it was held that the consent of A was obtained by undue influence.
registered under the Companies Act is determined by the objects clause of its memorandum of 4) Threatening to detain any property unlawfully : If a threat is held out to detain any property Presumption of Domination of Will
association. Any act done in excess of the powers given in the memorandumis ultra-vires and of another person, this also amounts to coercion. In Bansrajvs The secretary of State, the You have learnt that undue influence is involved only when one party is in a position todominate
void. government gave a threat of attachment against the property of A for the recovery of a fine the will of the other. Now the question arises as to when can a person be said to bein a position
Insolvents: When a debtor is adjudged insolvent, his property stands vested in the Official due from B, the son of A. A paid the fine. It was held that the consent of A was induced by to dominate the will of the other. Answer to this question is provided by Section16 (2) of the Act.
Receiver or Official Assignee appointed by the Court. He cannot enter into contracts relating to his coercion and he could recover the amount paid under coercion. It states that o person is deemed to be in a position to dominate the will of another where :
property and sue, and be sued, on his behalf. This disqualification of an insolvent is removed after 5) Intention of causing any person to enter into an agreement : The act of coercion must have i) He holds a real or apparent authority over the other : Examples of such cases are relations
he is discharged. been done with the object of inducing or compelling any person to enter into a contract. between master and the servant, parent and child, income tax officer and assessee.
FREE CONSENT 6)Threat to File a Suit: Sometimes a doubt may arise whether a threat to file a suit amounts to ii) He stands in a fiduciary relation to the other: It means a relationship based on trust and
Section 14 of the Act states that Consent is said to be free when it is not caused by (i) coercion, or coercion or not. You should know that a threat to file a civil or criminal suit does not amount to confidence. The category of fiduciary relationship is very wide. It includes the relationship of
(ii) undue influence, or (iii) fraud, or (iv)misrepresentation, or (v)mistake. Thus, the consent of the coercion because it is not forbidden by the Indian Penal Code. However, a threat to file a suit on guardian and ward, spiritual adviser (guru) and his disciples, doctor, and patient, solicitor and
parties to a contract is regarded as free if . it has not been induced by any of the five factors stated false charge amounts to coercion since such an act is forbidden by the Indian Penal Code. client, trustee and beneficiary, a woman and her confidential managing agent. You should note
under Section 14. In other words, the consent is not free if it can be proved thatit has been 7)Threat to Commit Suicide: Under the Indian Penal Code a suicide and a 'threat to commit that by judicial decisions it has been held that undue influence cannot be presumed between
caused by coercion, undue influence, fraud, misrepresentation, or mistake, For example, X, at a suicide' are not punishable. But, an attempt to commit suicide is punishable. Now, the question husband and wife, landlord and tenant, and creditor. and debtor.
gun point, makes Y agree to sell his house to X for Rs. 50,000. Here, Y's consent has been obtained arises whether a 'threat to commit suicide' shall amount to coercion or not. This point was iii) He makes a contract with a person whose mental capacity is temporarily or permanently
by coercion and therefore, it shall not regarded as free. considered by Madras High Court in the case of Ammiraju v. Seshamma. In this case a person, affected by reason of age, illness, or mental or bodily distress: Persons of weak intelligence,
When the consent of any party is not free, the contract is usually treated as voidable at the option by a threat to commit suicide, induced his wife and son to execute a release deed in favour of old age, indifferent health or those who are illiterate can be easily influenced. Hence, the law
of the party whose consent was not free. If, however, the consent has been caused by mistake on his brother in respect of certain property. The transaction was set aside on the ground of gives thein protection. For example, A, an illiterate old man of about 90 years, physically infirm
the part of both the parties, the contract is considered void. coercion. The court held that though a threat to commit suicide is not punishable under the and mentally in distress, executed a gift deed of his properties in favour of B, his nearest
Indian Penal Code, it is deemed to be forbidden by that code. relative who was looking after his daily needs and managing his cultivation. The court held that
From the above discussion it becomes clear that the definition does not say anywhere as to by B was in a position to dominate the will of A (Sher Singh v. Prithi Singh).
whom or against whom coercion can be exercised. Hence, whether the act of coercion is
 CONTINGENT CONTRACTS The contract may be enforced if the ship does not return-within the year, or is burnt within the 2. Discharge by Mutual Agreement: Just as a contract is created by means of an agreement, it
A contingent contract is a contract to do or not to do something if some event, collateral to such year. 6.Contingent agreement to do or not to do anything, if an impossible event happens, are can be terminated or discharged by mutual agreement. If the parties to a contract agree to
contract, does or does not happen (section 31). For example, A contracts to pay B Rs. 10,000 if B's void, whether the impossibility of the event is known or not to the parties to the .agreement at the make a fresh contract in place of the original contract, the original contract is discharged. A
house is burnt. This is a contingent contract. time when it is made, * Examples i) A agrees to pay B Rs.'1,000 if two parallel straight lines should contract can be discharged by mutual agreement in any of the following ways.
The following are the essential features of a contingent contract. enclose a space. The agreement is void. ii) A agrees to pay B Rs. 1,000 if B will marry A's daughter C a) Novation: The term 'novation' means the substitution of a new contract for the existing one.
1. Performance of a contingent contract is made dependent upon the happening or non- and C was dead at the time of the agreement. The agreement is void. This arrangement may be either between the same parties or between different parties. The
happening of dome event. consideration for the new contract is the discharge of the original contract. Since novation
2. The event on which the performance is made to depend, is an event collateral to the TERMINATION AND DISCHARGE OF A CONTRACT implies a new contract, all the parties to the existing contract must agree to it.
contract i.e., it does not form part of the reciprocal promises which constitute the contract. For The term 'discharge of a contract' means that the parties to it are no more liable under the Examples
example, where A agrees to deliver 100 bags of wheat and B agrees to pay the price only contract. A contract may be discharged in any one of the following ways: i) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth
afterwards, the contract is a conditional contract and not contingent, because the event on 1 By performance accept C as his debtor instead of A. The old debt of A to B is discharged, and a new debt from C to
which B's obligation is made to depend is a part of the promise itself and not a collateral event. 2 By mutual agreement B has been contracted. This is novation involving change of parties. 8 ii) A owes B Rs. 10,000. A
Similarly, where A promises to pay B Rs. 10,000 if he marries C, it is not a contingent contract. 3 By lapse of time enters into an agreement with B and gives B a mortgage of his estate for Rs. 5,000 in place of the
3. The contingent event should not be the mere will of the promisor. For instance, if A promises 4 By operation of law debt of Rs. 10.000. This arrangement constitutes a new contract and terminates the old.
to pay B Rs. 1,000 if he so chooses, it is not a contingent contract. However, where the event is 5 By impossibility of performance b) Rescission : Rescission means cancellation of the contract. If by mutual agreement the
within the promisor's wi!l but not merely his will, it may be a contingent contract. ,For exarple, 6 By breach. contracting parties agree to rescind the contract, the contract is discharged. A contract can be
if A promises to pay B Rs. 1,000 if A left Delhi for Bombay, it is a contingent contract, because rescinded before the performance becomes due. Non-performance of a contract by both the
going to Bombay is an event no doubt within A's will, but is not merely his will. 1. Discharge by Performance :The most obvious or natural mode of discharge of a contract is by parties for a long period, without complaint, amounts to implied rescission. Rescission is
Rules Regarding Enforcement of Contingent Contracts performance. The term 'performance' means that the parties to the contract have fulfilled or different from novation in the sense that in case of novation a new contract is substituted for
The rules regarding contingent contracts are summarised hereunder (sections 32 to 36): carried out their respective obligations arising out of the contract. For example, A contracts.to the original contract whereas in rescission the original contract is cancelled and no new
1 .Contracts contingent upon the happening of a future uncertain event cannot be enforced by sell his book to B for Rs. 50. A delivers the book and B makes the payment, the contract is contract is made.
law unless and until that event has happened. And if, the event becomes impossible, such discharged by performance. c) Alteration: It means a change in one or more of the terms of a contract with consent of all
contract becomes void (section 32). Section 37 of the Indian Contract Act lays down.the obligations of the parties regarding the parties. Alteration has the effect of terminating the original contract. In an alteration there
Examples i) A makes a contract with B to buy B's horse if A survives C. This contract cannot be performance. It provides that, the parties to a contract must either perform, or offer to perform, is a change in the terms of a contract but no change of parties to it. In novation there may be
enforced by law unless and until C dies in A's life-time. their respective promises, unless such performance is dispensed with or excused under the change of parties.
2 .Contracts contingent upon the non-happening of a certain future event can be enforced provision of this Act, or any otrher law. d) Remission: It means the acceptance of a lesser sum than what was contracted for or a lesser
when the happening of that event becomes impossible, and not before (section 33). For Types of Performance fulfilment of the promise made. According to section 63, every promisee may (a) remit or
example, A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. From Section 37 you can infer that the performance may be either actual or attempted. a)Actual dispense with it, wholly or in' part, or (b) extend the time of performance, or (c) accept any
The contract can be enforced when the ship sinks. performance: When a party to a contract has done, what he had undertaken to do andthere other satisfaction instead of performance. A owes B Rs. 5,000. A pays to B Rs. 3,000 who
3 .If a contract is contingent upon as to how a person will act at an unspecified time, the event remains nothing to be done by him the promise is said to have been actually performedand the accepts it in full satisfaction of the debt. The whole debt is discharged.
shall be considered to become impossible when such person does anything, which renders it liability of such a party comes to an end. For example A who is indebted to B for Rs.1,000, e) Waiver: Waiver means abandonment or intentional relinquishment of a right under the
impossible that he should so act within any definite time, or otherwise than under further promises to repay the amount after two months. A repays the.amount on the due date.This is contract. When a party waives his rights under it, the other party is released from his
contingencies. (section 34). For example, A agrees to pay B a sum of money if B marries C. But C actual performance. . obligation. For example, A promises to paint a picture for B. B afterwards forbids him to do so.
marries D. The marriage of B to C must now be considered impossible, although it is possible b)Attempted Performance: Sometimes, when the performance becomes due, the promisor offers A is no longer bound to perform the promise.
that D may die and that C may afterwards marry B. to perform his obligation but the promisee refuses to accept the performance. This is known as 3. Discharge by Lapse of Time: The rights and obligations under a contract can be enforced only
4 .Contracts contingent upon the happening of an uncertain specified event within a fixed time 'attempted performance' or 'tender. For example, A promises to deliver certain goods to B. A takes within a specified period called the 'period of limitation'. The Limitation Act has prescribed the
become void if, at the expiration of the time fixed, such event has not happened or if, before the goods to the appointed place during business hours but B refuses to take the delivery of period of limitation for various contracts: For example, period of limitation for exercising right
the time fixed, such event becomes impossible (section 35) For example, A promises to pay B a goods. Thus, A has done what he was required to do under the contract, It is, an attempted to recover an immovable property is twelve years and right to recover a debt is three years.
sum of money if a certain ship returns within a year. The contract may be enforced if the ship performance. In case of an attempted performance, the promisor shall not be held liable for non- After the expiry of this limitation period, the contractual rights cannot be enforced. In other
returns within the year, and becomes void if the ship is burnt within the year. performance as an attempted performance or tender is as good as performing the contract. words, if a debt is not recovered within three years of its payment becoming due, the debt
5 .Contracts contingent upon the non-happening of a specified event within a fixed time may be Section 38 of the Contract Act provides. where a promisor has made an offer of performance to becomes time barred and is discharged by lapse of time.
enforced by law when the time fixed .has expired and such event has not happened, or before the promisee, and the offer has not been accepted, the promisor is not responsible for non 4. Discharge by Operation of Law: A contract may be discharged by operation of law in the
the time fixed expired, if it becomes certain that such event will not happen' (section 35). For performance, nor does he thereby lose his rights under the contract. following cases.
example, A promises to pay B a sum of money if a certain ship does not return within a year.

i) Death of the Promisor: Contracts involving the personal skill or ability of the promisor come impossibility of performance (Taylor v. Caldwell). ii) A person agreed to deliver a part of a specific Commercial impossibility not discharge the parties. For example, A agreed to supply certain goods
to an end with the death of the promisor. crop of potatoes. The potatoes were destroyed by a pest through no fault of the party. The to B. As a result of an increase in the cost of raw material and wage bill, it is now no longer
ii) Insolvency: When a person is declared insolvent by an Insolvency Court, he is discharged contract was held to be discharged (Howell v. Coupland). profitable for A to supply the goods-at the agreed rate, A cannot be excused for non- performance.
from his obligation existing at that time. So, if a promisor is declared insolvent, he is discharged b) Death or personal incapacity: When the peformance of a contract depends upon the Default of a Third Party: If the contract cannot be performed because of the default of a third
from his liability. personal skill or ability of a party, the contract stands discharged on the . death or incapability person on whose work the promisor relied, the promisor is not discharged. For example, A entered
iii) Merger: When an inferior right accounting to a party in a contract merges into the superior of that person. For example, A agreed to perform at a concert on a specified day. A fell seriously into a contract with B for the supply of certain cotton goods to be manufactured by C,a
rights accruing to the same party, the earlier contract is discharged. For example, A took a land ill and so could not perform on the said day. It was held that the contract is discharged on the manufacturer of these goods. C did not manufacture those goods. A is not discharged fromhis
on lease from B. Subsequently, A purchases that very land. Now A becomes the owner of the ground of impossibility (Robinson v. Davison). obligation and is liable to B for damages.
land and the earlier contract of lease stands terminated. c)Change of Law: A contract which was lawful at the time of making it but becomes unlawful by Strikes, Lockouts and civil Disturbances: A strike by the workers or a lockout by the employer
iv) Material alteration: In a written contract if any party makes some material alteration in the reasons of subsequent change in law, the performance becomes impossible and the contract is or riots etc. will not excuse the parties from performing the contract unless there is a clause in
terms of the contract without the approval of the other party, the contract stands terminated. discharged. .the contract to that effect.. For example, a contract was entered into between two merchants for
A material alteration is one which varies the rights, liabilities or the position of the parties as Examples i) A agreed to transport certain goods belonging to B from one place to another. $lie sale of certain goods which were to be imported from Algeria. The goods could not be
such, You should note that immaterial alterations, such as correcting the clerical errors or the Subsequently, A's trucks were requisitioned by the Government under a statutory power. It was imported because of riots and civil disturbances in that country. It was held that this was no
spelling of a name has no effect on the validity of the contract. held that A was discharged from his obligation (Noor Bux v. Kalyan). excuse for non-performance of the contract.
5. Discharge by Impossibility of Performance: For a contract to be valid it must be capable of ii) A agreed to sell his land to B. Subsequently, the land was acquired by the Government. NowA Partial Impossibility : If the contract is made for several purposes, the failure of one or more of
being performed. But sometimes, due to some reasons which are beyond the control of the cannot perform his promise, the contract was held to become void on the ground of impossibility them does not discharge the contract. 'For example, A agreed to let a boat to H to (i) view the
parties, the performance of a contract becomes impossible. In such cases, the contract is (Shyam Sunder v. Durga). naval review at the coronation of King, and (ii) to cruise round the fleet. Due to the illness of the
discharged on the ground of impossibility of performance. Section 56 of Contract Act provides d) Cessation of a state of things: If a contract is entered into on the basis of the continued King, the naval review was cancelled, but the fleet was assembled and the boat could have
that an agreement to do an act impossible in itself is void. This rule is based on the principle existence or occurrence of a particular state of things, the contract is discharged if the state of been used to cruise round the fleet. It was held that the contract was not discharged.
that law does not recognise the impossible and what is impossible does not create any things ceases to exist or changes. It should be noted carefully that the contract is discharged 6. Discharge by Breach: When a contract is made, the parties to it are expected to perform it,
obligations. only when the happening of the event was the basis of the contract, unless they are excused. If any party refuses or fails to perform his part of the contract, a
Impossibility may be of two types : (i) initial and (ii) subsequent. Examples i) A and B contract to marry each other. Before the time fixed for the marriage, A breach of contract occurs and the contract is discharged. In case of breach the aggrieved party
i) Initial impossibility: It means impossibility at the time of making the contract. Whether the goes mad. The contract becomes void. is relieved from performing his obligation and gets a right to proceed against the party at fault.
fact of impossibility is known or unknown to the parties, the agreement is void ab initio. For e)Declaration of War: If a war is declared subsequent to the formation of the contract, all A breach of contract may arise in two ways: (i) actual breach and (ii) anticipatory breach.
example A agrees with B to discover a treasure by magic. The agreement is void due to initial pending contracts are either suspended or declared as void. If the war is of a short duration, Actual Breach: Actual breach of contract may take place either on the due date of performance or
impossibility. If, however, the promisor alone knows about the initial impossibility while making such contracts may be revived after the end of the during the course of performance. For example, A agreed to deliver 100 bags of rice to B at a
the contract, he shall have to compensate the promisee for any loss which the promisee may war. For example, A contracts to take in cargo for H at a foreign port. A's Government afterwards certain price on 10th July. If A refuses or fails to deliver ;.he goods on time, there occurs an actual
suffer on account of non-performance. This rule is given in Para 3 of section 56. For example, A declares war against the country in which the port is situated. The contract becomesvoid when the breach. If the promisor has performed part of the contract and then refuses or fails to deliver the
contracts to marry B, being already married to C. Being forbidden by the law of which he is war is declared. remaining goods, it is also actual breach of contract.
subject to practise polygamy, A must compensate B for the loss caused to her by the non- Some of the cases which do not come within the principle of supervening impossibility are as Anticipatory Breach: Anticipatory breach occurs when the party declares his intention of not
performance of the contract on account of impossibility. follows: performing the contract before the performance is due. This intention may be declared expressly
ii) Subsequent or Supervening Impossibility : Impossibility which arises subsequent to the Difficulty of Performance:The contract is not discharged simply because the performance has or impliedly. For example, A agrees to supply certain goods to B on 10th July. Before this date A
making of the contract is called supervening impossibility. If the contract was capable of become more difficult, more expensive or less profitable than stipulated at the time of its informs B that he shall not supply the goods. If, instead of, expressly informing B about his
performance at the time of making it, but subsequently because of some event (over which formation. intention of not performing the contract, A does something which makes it impossible for him to
neither party has any control) the performance becomes impossible or unlawful, the contract Examples i) A agreed to supply coal within certain period. Due to government's restrictions on the perform, this will also amount to anticipatory breach. If in the example given above, A sells all the
becomes void and the parties are discharged' from their obligations. In case of initial transport of coal from collieries, he failed to supply on time. But since coal was available in the goods before the said date to P at a higher price, this action of A clearly indicates his intention.
impossibility the agreement is void ab-initio while in case of supervening impossibility the open market from where A could have obtained it, A will not be discharged on the groundof REMEDIES FOR BREACH OF CONTRACT
contract becomes void. impossibility. When a contract is broken by a party, there are several courses of action (remedies) which the
The performance of a contract may become subsequently impossible due to any of the following ii) A promised to send certain goods from Bombay to Antwerp in September. In August, war broke other party may pursue. These remedies include:
reasons. out and shipping space was not available except at very high rates. It was held that the increase of 1. Rescission of the contract
a) Destruction of Subject-Matter: If the subject-matter of a contract is destroyed after the freight rates did not excuse performance. 2. Suit for damage
formation of the contract, without the fault of either party, the contract becomes void. Commercial Impossibility : Performance cannot be excused on the ground of commercial 3. Suit for specific performance
Examples i) A musical hall was agreed to be let out on certain dates, but before those dates the impossibility. If the raw material is available at a very high rate or wages have gone up and the
hall was destroyed by fire. The contract was held to have become void on the ground of performance becomes less profitable than anticipated, the contract does not become void.
 4. Suit for injunction work he has already done. This right of claiming the payment for work already done, before the recover the value thereof from the property of such incapable person. You should note that the
5. Suit upon quantum meruit repudiation of the contract or its further performance becoming impossible is called the right to aforesaid claim for necessaries is based upon' quasi contractual obligations because a contract
1. Rescission of the Contract : Section 39 of the Act provides that when a party to a contract quantum meruit. For example, X, a writer, was engaged by M who is the editor of a magazine to with a person incompetent to contract is void-ab-initio. The following two points must, however,
has refused to perform, or disabled himself from performing his promise in. its entirety, the write a series of twelve articles to be published in the magazine. After X had delivered six articles, be noted in this regard:
promisee may put an end to the contract. This is called right of rescission. It means setting aside the publication of the magazine was discontinued. X is entitled to receive payment for the six a) The amount is recoverable only from the property (if any) of the incapable person and not
of the contract. In such a case aggrieved party is discharged from all t obligations under the articles already written. from him personally.
contract. It should be noted that section 75 of the Indian Contract Act also confers upon a QUASI CONTRACTS b) The goods or services supplied must be 'necessaries'.
person rightfully rescinding the contract to make a claim for compensation of any loss or There are many situations in which a person may be required to conform to an obligation, ii) Payment of Money Due by Another(Section 69): A person who is interested in the payment
damage sustained through the non-fulfilment of the contract. although he has neither broken any contract nor committed any tort. For example, A has forgotten of money which another is bound by law to pay, and who therefore pays it, is entitled to be
2. Suit for Damages :In the event of breach of contract; the aggrieved party besides rescinding certain articles in B's house. Now B is bound to restore . Such obligations are generally described reimbursed by the other. Example : B holds land in Bengal on a lease granted by A, the
the contract can claim for damages. Damages are monetary compensation allowed for loss as 'quasi contractual obligations'. Quasi contracts are based on the principleof equity and justice. It Zamindar. The revenue payable by A to the Government being in arrears, his land is advertised
suffered by the aggrieved party due to the breach of contract. simply states that nobody shall enrich himself unjustly at the expense of another. In fact, a quasi for sale by the Government, Under the revenue law, the consequences of such sale will be
3. Suit for Specific Performance : In certain cases of breach of contract, damages may not be contract is not a contract at all. It is an obligation which the law creates in the absence of any annulment of B's lease. B, to prevent the sale and consequent annulment of his own lease, pays
considered as an adequate remedy. The aggrieved party may not be interested in monetary agreement, when the acts of the party or others have placed in the possession of one person, to the Government the sum due from A. A is bound to make good to B the amount so paid
compensation. The court may, in such cases, direct the defaulting party to carry out the money or its equivalent under such circumstances that in equity and good conscience, he ought (Wazarilal v. NaurangLal).
promise according to the terms of the contract. This is called 'Specific Performance' of the not to retain it, and which in justice and fairness belongs to another. He then is placed under an For the section 69 to apply, the following essentials must be met:
contract. .' Specific performance of a contract may, at the discretion of the Court, be enforced obligation to restore or repay for such a benefit. a) The person paying must be himself interested in making the payment. Thus, where P left his
where the contract involves the sale of a particular house or some rare article or any other DEFINITIONS OF QUASI CONTRACTS carriage on D's premises and D's landlord seized the carriage for non-payment of the rent. P
thing for which monetary compensation is not enough because the injured party will not be There is no statutory definition of a quasi contract available either under the English Law or under paid the rent to obtain the release of his carriage. Held. P could recover the amount from D
able to get an exact substitute in the market. For example, A agreed to sell an old painting to B the Indian Contract Act. Pollock describes quasi contracts as "contracts 'in law' but not 'in fact', b) The payment should not be voluntary one.
for Rs. 10,000. Subsequently, A refused to sell the painting. Here, B may file a suit against A for being the subject matter of a fictitious extension of the sphere of the contract to cover obligations c) The payment must be such as the other party was bound by law to pay.
the specific performance of the contract. which do not in reality fall within it" Quasi contracts are also called implied contracts, They are
Specific performance is not granted under the following situations : implied because they create such obligations which resemble those created by contracts. The Example : The goods belonging to A were wrongfully attached in order to realise arrears of
a) When monetary compensation is an adequate relief; essentials for the formation of a contract are absent but as outcome resembles those created by a Government revenue due by G. A paid the amount to save the goods from sale. Held he was
b) When the contract is of a personal nature, e.g., a contract to paint a picture, etc. In such contract they are called quasi contracts. Under English Law, they are also termed as Constructive entitled to recover the amount from G (AbidHussain v. Ganga Sahai).
contracts injunction is granted in place of specific performance. Contracts or Contracts in Law, etc. Indian Contract Act terms quasi contracts as certain relations iii) Obligations to Pay for Non-gratuitous Acts :Where a person lawfully does anything for
c) Where it is not possible for the court to supervise the performance of the contract, e.g., a resembling those created by contracts and are found under sections 68 to 72. another person or delivers anything to him not intending to do so gratuitously, and such other
building construction contract. Difference Between Quasi Contracts and Contracts person enjoys the benefit thereof, the latter is bound to make compensation to the former in
d) l When the contract is made by a company beyond its powers as laid down in its In case of contracts, it is the consent of the party which produce the obligations. But in quasi respect of, or to restore, the thing so done or delivered.
memorandum of association. e) When the contract is inequitable to either party. ' contracts there is no question of consent, it is the law alone or natural equity which produces Under section 70, three conditions are required to establish a right of action at the suit of a person
f) Where one of the parties is a minor. obligations. As noted earlier, a quasi contract is based on the ground that a person shall not be who does anything for another:
4. Suit for Injunction :Where a party is in breach of a negative term of a contract (i.e., where he allowed to unjustly enrich himself at the expense - of another. There is, however, similarity a) The thing must be done lawfully.
does something which he promised not to do) the court may by issuing an order, prohibit him between quasi contract and contracts in case of claims for damages. In case of breach of a quasi b) It must be done by a person not intending to act gratuitously.
from doing so. Such an order issued by court is called an 'injunction'. contract section 73 of the Indian Contract Act provides for the same remedies (claim fordamages) c) The person for whom the act is done must enjoy the benefit of it.
Example: G agreed to buy the whole of the electric energy required for his house from a certain as provided in case of breach of a contract. It reads: When an obligation resembling those created iv) Contracts required to be in writing: You should note that where there is a mandatory
company. He was, therefore, restrained by an injunction from buying electricity from any other by contract has been incurred and has not been discharged, any person injured by the failure to provision in an act requiring contracts to be in writing, an oral contract is void. But it has been
person. (Metropolitan Electric Supply Company vsGinder). discharge it is entitled to receive the same compensation from the party in default, as if such held by the Supreme Court that where work has been done and accepted, Section 70 is
5.Suit upon Quantum Meruit person has contracted to discharge it and has broken his contract. applicable and payment should be made for the work done (State of West Bengal v. B.K.
The phrase 'Quantum Meruit' means 'as much as is merited (earned)'. The normal rule of law is TYPES OF QUASI CONTRACTS Mandal& Sons).
that unless a party has performed his promise in its entirety, he cannot claim performance from Sections 68 to 72 deal with five types of quasi contractual obligations. v) Responsibility of a Finder of Goods: A person who finds goods belonging to another and
the other. To this rule, however, there are certain exceptions on the basis of quantum meruit. ' i)Supply of Necessaries: According to section 68, if a person incapable of contracting (which takes them into his custody is subject to the same responsibility as a bailee. In such a case, an
When a person has done some work under a contract and the other party repudiates the contract, would include a minor, idiot and lunatic) or anyone whom he is legally bound to support, is agreement is implied by law between the owner and finder of goods and the latter is deemed
or some event happens which makes the further performance of the contract impossible, then supplied by another with 'necessaries' suited to his condition in life such person is entitled to to be a bailee. A finder is, thus, bound to take as much care of the goods found as a man of
the party who has already performed the work can claim payment for the

ordinary prudence would under similar circumstances take of his own goods of the same bulk,
quantity and value. Besides, he must make reasonable efforts in finding the real owner.
Rights of the Finder of Goods : A finder of goods has the following rights:
1. The finder is entitled to retain the goods against the whole world, except the true owner. For
example, A picked up a diamond from the floor of B's shop and handed it over to B to keep it till
the owner is found. In spite of best efforts, the true owner could not be found. After some time,A
tendered to B the lawful expenses incurred by him for finding the true owner and asked himto
return the diamond to him (A). B refused to do so. Held B must return the diamond to A as Awas
entitled to retain it against the whole world, except the true owner (Hollins v. Fowler). 2.The finder
has lien in respect of any sum which may be due to him on account of expenditureincurred by him
in respect of the goods (section 168).
3. Where the owner has offered a specific reward for the return of goods lost, the finder may
sue for such reward, and may retain the goods until he receives it (section 168). This right was
re-endorsed in the case of Harbhajan v. Harcharan.
4. The finder may sell the goods in the following circumstances :
a) Where the thing found is in danger of perishing.
b) Where the owner cannot, with reasonable diligence, be found out.
c) Where the owner has been found but he refuses to pay the lawful charges of the finder.
d) Where the lawful charges of the finder, in respect of the thing found amount to 2/3rd or
more of the value of the thing found.