THE INDIAN CONTRACT ACT,1872

Introduction:-
 The law of contract in India is contained in the Indian Contract Act,1872.
 It extend to whole of India except the state of Jammu and Kashmir
 It came into force on the 1/09/1872.
 The act is not exhaustive - It does not deal with all the branches of law of contract. there
are separate acts which deal with contracts relating to negotiable instruments, sale of
goods Act, partnership, insurance etc.

Definition of Contract

According to Section 2(h) of Indian Contract Act -"A contract is an agreement enforceable
by law".
Salmond defines the contract in the following words "An agreement creating and defining
obligations between the parties". So there are two conditions for the contract.
1. An Agreement: - Agreement is defined in the following words :
Sec. 2(e)-" Every promise or every set of promises forming the consideration for each other"

Example :- Mr. Sam invites Miss Sarah to a marriage party at his house. Miss Sarah does not go
to the party, Mr. Sam cannot claim any compensation because this agreement is not enforceable
at law.
Promise - Sec. 2(b) - "when a person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. A proposal, when accepted becomes a promise."
Promise = Proposal + Acceptance.
Agreement = Promise + Consideration of both the parties

On analysis of above definition the following characteristics of an agreement:-

(a) Plurality of person - there must be two or more person to make an agreement.

(b) Consensus-ad-idem - both parties to an agreement must agree about the subject-matter of the
agreement in the same sense at the same time.

2. Legal obligation - An agreement to become a contract must give rise to a legal obligations
i.e., a duty enforceable by law.
Contract = Agreement enforceable at law.

Any agreement which enables a man to compel another to do something or not do something, it
is called contract. Agreement becomes a contract when it is enforceable by law.

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Example: - Suppose there is an agreement between Mr. Khan and Miss. Lucy that Mr. Khan will
bring the car from Washington for Miss. Lucy and Miss Lucy will pay Rs. 10 lac to Mr. Khan.
Now this agreement is a contract because it enables Mr. Khan to compel Miss. Lucy for purchase
of car. It also compels to Mr. Khan for the sale of car. So agreement is a contract because it is at
law.
An agreement cannot turn into a contract unless it can be enforceable by Law. So, in order to be
enforceable, a contract must contain all the essential elements of  a valid contract as defined in
Section 10 of the Indian Contract Act 1872.

Important Note: - All agreements are not contract but all contract are agreement. Because
agreement is not enforceable by law. It may exist without any legal obligation.

Essential elements of a valid contract

According to Section 10, all agreements are contracts if they are made by the free consent of the
parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly
declared by the Act to be void, and, where necessary, satisfy the requirements of any law as to
writing or attestation or registration.

1. Offer and acceptance:

There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an
agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the
requirements of the Contract Act in relation thereto.

2. Intention to create legal relations:

There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of a social or domestic nature do not
contemplate legal relations, and as such they do not give rise to a contract.

An agreement to dine at a friend’s house is not an agreement intended to create legal relations
and therefore is not a contract. Agreements between husband and wife also lack the intention to
create legal relationship and thus do not result in contracts.

3. Lawful consideration:
The third essential element of a valid contract is the presence of ‘consideration’. Consideration
has been defined as the price paid by one party for the promise of the other. An agreement is
legally enforceable only when each of the parties to it gives something and gets something.

The something given or obtained is the price for the promise and is called ‘consideration’.
Subject to certain exceptions, gratuitous promises are not enforceable at law.

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The ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a
promise to do or not to do something. It may be past, present or future. But only those
considerations are valid which are ‘lawful’.

4. Capacity of parties:
The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a
court of law. In order to be competent to contract the parties must be of the age of majority and
of sound mind and must not be disqualified from contracting by any law to which they are
subject (Sec. 11).

If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness, etc., the
agreement is not enforceable at law.

5. Free consent:
Free consent of all the parties to an agreement is another essential element of a valid contract.
‘Consent’ means that the parties must have agreed upon the same thing in the same sense (Sec.
13).

There is absence of free consent’ if the agreement is induced by

(i) coercion, (Sec. 15)

(ii) undue influence, (Sec. 16)
(iii) fraud, (Sec,17)
(iv) misrepresentation, (Sec. 18) or
(v) mistake (Sec. 20,21,22)

(Sec.14). If the agreement is vitiated by any of the first four factors, the contract would be
voidable and cannot be enforced by the party guilty of coercion, undue influence etc.

The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the
rules laid down in the Act. If the agreement is induced by mutual mistake which is material to
the agreement, it would be void (Sec. 20).

6. Lawful object:
For the formation of a valid contract it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered into must not be
fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the
person or property of another (Sec. 23).

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If the object is unlawful for one or the other of the reasons mentioned above the agreement is
void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he
cannot recover the rent through a court of law.

7. Writing and registration:

According to the Indian Contract Act, a contract may be oral or in writing. But in certain special
cases it lays down that the agreement, to be valid, must be in writing or/and registered. For
example, it requires that an agreement to pay a time barred debt must be in writing and an
agreement to make a gift for natural love and affection must be in writing and registered (Sec.
25).

Similarly, certain other Acts also require writing or and registration to make the agreement
enforceable by law which must be observed.

Thus, (i) an arbitration agreement must be in writing as per the Arbitration and Conciliation Act,
1996; (ii) an agreement for a sale of immovable property must be in writing and registered under
the Transfer of Property Act, 1882 before they can be legally enforced.

8. Certainty:
Section 29 of the Contract Act provides that “Agreements, the meaning of which is not certain or
capable of being made certain, are void.” In order to give rise to a valid contract the terms of the
agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the
agreement, for otherwise, it cannot be enforced.

Illustration:
A agrees to sell B “a hundred tons of oil.” There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.

9. Possibility of performance:
Yet another essential feature of a valid contract is that it must be capable of performance.
Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration:
A, agrees with B to discover treasure by magic. The agreement is not enforceable.

10. Not expressly declared void:

The agreement must not have been expressly declared to be void under the Act. Sections 24-30
specify certain types of agreements which have been expressly declared to be void.
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For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an
agreement by way of wager have been expressly declared void under Sections 26, 27 and 30
respectively.

Before dealing with the various essentials of a valid contract one by one in detail, it will be
appropriate to discuss the ‘kinds of contracts’, first, because we shall be using the terms like
‘voidable contract’, ‘void contract’, ‘void agreement’, etc., very often in the course of our
discussion.

Types of Contracts
In connection with contracts, there are four types of classifications. Types of contracts in contract
law are as follows;

1. On the basis of Formation/Creation

2. On the basis of Execution and
3. On the basis of Validity/Enforceability

1. Types of Contracts on the basis of Formation/Creation

On this base Contracts can be classified into three groups, namely Express, Implied, Quasi
Contracts.

a. Express Contracts: The Contracts where there is expression or conversation are called

Express Contracts. For example: A has offered to sell his house and B has given
acceptance. It is Express Contract.
b. Implied Contract: The Contracts where there is no expression are called implied
contracts. Sitting in a Bus can be taken as example to implied contract between passenger
and owner of the bus.
c. Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so,
Actually there will be no Contractual relations between the partners. Such a Contract
which is created by Virtue of law is called Quasi Contract. Sections 68 to 72 of Contract
Act read about the situations where court can create Quasi Contract.

 Sec. 68: When necessaries are supplied

 Sec. 69: When expenses of one person are paid by another person.
 Sec. 70: When one party is benefited by the activity of another party.
 Sec. 71: In case of finder of lost tools.
 Sec. 72: When payment is made by mistake or goods are delivered by mistake.

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Example: A case on this occasion is Chowal Vs Cooper. In this case A`s husband becomes no
more. She is very poor and therefore not capable of meeting even cost of cremation. B, one of
her relatives, understand`s her position and spends his own money for cremation. It is done so
without A`s request. Afterwards B claims his amount from A where A refuses to pay. Here court
applies Sec. 68 and creates a Quasi Contract between them.

2. Types of Contracts on the basis of Execution

On the basis of execution, the contracts may be classified as under :

a. Executed Contract It is a contract where both the parties to the contract have performed
their respective obligations under the contract.

Example: X offers to sell his car to Y for Rs 1,00,000. Y accepts X offer X delivers the
car to Y and Y pays Ks 1,00,000 to X. It is an executed contract.

b. Executory Contract It is a contract where both the parties to the contract have still to
perform their respective obligations.

 Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts X’s offer. If the car
has not yet been delivered by X and the price has not yet been paid by Y, it is an
executory contract.

c. Partly Executed and Partly Executory Contract It is a contract where one of the
parties to the contract has performed his obligation and the other party has still to perform
his obligation.

 Example: X offers to sell his car to Y for Rs. 1,00,000 on a credit of one month. Y
accepts X’s offer. X delivers the car to Y. Here, the contract is executed as to X and
executory as to Y.

3. Types of Contracts On the basis of Validity/Enforceability

On this base Contracts can be classified into 5 groups. namely Valid, Void, Voidable, Illegal and
Unenforceable Contracts.

a. Valid Contract: The Contracts which are enforceable in a court of law are called Valid
Contracts. To attain Validity the Contract should have certain features like consensus ad
idem, Certainty, free consent, two directional consideration, fulfillment of legal
formalities, legal obligations, lawful object, capacity of parties, possibility of
performance, etc.

Example: there is a Contract between X and Y and let us assume that their contract has
all those above said features. It is Valid Contract.

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b. Void Contract: A Contract which is not enforceable in a court of law is called Void
Contract. If a Contract is deficient in any one or more of the above features (Except free
consent and legal formalities). It is called Void Contract.

Example: there is a Contract between X and Y where Y is a minor who has no capacity to

contract. It is Void Contract.

c. Voidable Contract: A Contract which is deficient in only free consent, is called

Voidable Contract. That means it is a Contract which is made under certain pressure
either physical or mental. At the option of suffering party, a voidable contract may
become either Valid or Void in future. For example: there is a Contract between A and B
where B has forcibly made A involved in the Contract. It is voidable at the option of A.

Illegal: If the contract has unlawful object it is called Illegal Contract.

Example:  There is a contract between X and Z according to which Z has to murder Y for
a consideration of Rs. 10000/- from X. It is illegal contract.

d. Unenforceable Contract: A contract which has not properly fulfilled legal formalities is
called unenforceable contract. That means unenforceable contract suffers from some
technical defect like insufficient stamp etc. After rectification of that technical defect, it
becomes enforceable or valid contract.

Example:  A and B have drafted their agreement on Rs. 10/- stamp where it is to be
written actually on Rs. 100/- stamp. It is unenforceable contract.

OFFER AND ACCEPTANCE

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 OFFER OR PROPOSAL

Definition of Offer Or Proposal

When a person signifies to another his willingness to do or to abstain from doing anything, with
a view to obtaining the ascent of that other to such act or abstinence he is said to make a
proposal. -Section 2 (a) of Indian Contract act.

Proposal and offer both are used in the same sense and there is no difference in their meanings. 
(i). The person who makes the proposal is called proposer offeror or promisor.

(ii). The person to whom offer is made is called offer or promisee.

Note: - There will be no agreement, if the proposal is made without the intention of creating
legal rights and obligations.

Following are the legal rules or essentials of a valid offer:

1. It may be express or implied:

An offer may be made either by words or by conduct. An offer, which is made by words spoken
or written, is called an express offer. The offer, which is made by the conduct of a person, is
called an implied offer.
Example: 1. M says to N that he will sell his motorcycle to him for Rs.40,000. It is an express
offer.
2. A railway coolie carries the luggage of B without being asked to do so B allows him to do so.
It is an implied offer.
3. The new Khan Transport Company runs buses on different routes to carry passengers at the
scheduled fares. This is an implied offer by the company.

2. It must create legal relation:

The offer must be made in order to create legal relations otherwise, there will be no agreement. If
an offer does into give rise to legal obligations between the parties it is not a valid offer in the
eye of law.
Example: 1. A invites B to dinner B accept the invitation. It does not create any legal relations,
so there is no agreement.
2. A offers to sell his watch to B for Rs.200 and B agrees. There is an agreement because here
the parties intend to create legal relations.
3. Three friends joined to enter a newspaper competition and agreed to share any winnings. It
was held the intended to create legal relations and their agreement was therefore a contract.

3. It must be definite & clear:

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An offer must be definite and clear, if the terms of an offer are not definite and clear, it cannot be
called a valid offer. If such offer is accepted it cannot create a binding contract.
Example: A has two motorcycles. He offers B to sell one motorcycle for Rs.27,000. It is not a
valid offer because it is not clear that which motor cycle A wanted to sell.

4. It is different from invitation to offer:

An offer is different from an invitation to offer. It is also called invitation to treat or invitation to
receive offer. An invitation to offer looks like offer but legally it is not offer.
In the case of an invitation to offer, the person sending out the invitation does not make an offer
but only invites the other party to make an offer. His object is to inform that he is willing to deal
with anybody who after getting such information is willing to open negotiations with him. Such
invitations for offers are not offers according to law and so cannot become agreement by
acceptance.
Example: 1. Quotations, Catalogues of prices, display of goods with prices issue of prospectus
by companies are examples of invitation to offer.
2. Display of goods in an auction sale is not an offer rather it is an invitation to offer. The offer
will come from the buyer in the form of bids.

5. It may be specific or general:

When an offer is made to a specified person or group of persons, it is called specific offer. Such
an offer can be accepted only by the person or persons to whom it is made. A general offer, on
the other hand, is one, which is made to public in general and it may be accepted by any person
who fulfils the conditions mentioned in it. Both specified and general offers are valid.
Example: 1. M makes an offer to N to sell his bicycle for Rs.800, it is a specific offer. In this
case, only N can accept it.
2. A announces in a newspaper a reward of Rs.1,000 for anyone who will return his lost radio. It
is general offer.

6. It must be communicated to the offeree:

An offer is effective only when it is communicated to the offeree. If an offer is not
communicated to the offeree it cannot be accepted. Thus an offer, which is not communicated, is
not a valid offer. It applies to both specific and general offers.
Example: A without knowing that a reward has been offered for the arrest of a particular
criminal, catches the criminal and informs the police. A cannot recover the reward as he was not
aware of it.

7. It should not contain negative condition:

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An offer should not contain a condition the non-compliance of which may be assumed as
acceptance. An offeror cannot say that if acceptance is not communicated up to a certain date,
the offer would be presumed to have been accepted. If the offeree does not reply, there is no
contract, because no obligation to reply can be imposed on him, on the ground of justice no
agreement because such condition cannot be imposed on the offeree. It is only a one sided offer.
Example: A wrote to B offering to sell his book for Rs.500 adding that if he didn’t reply with in
5 days, the offeree would be presumed to have been accepted. There is no agreement b/c such
condition can’t be imposed on the offeree. It is only a one sided offer.

8. It may be subject to any terms & conditions:

An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the
mode of acceptance. There is no contract, unless all the terms of the offer are accepted in the
mode prescribed by the offeror. It must be noted that if the offeror asks for sending the
acceptance by telegram and the offeree sends the acceptance by letter, and the offeror may reject
such acceptance.
Example: A asks B to send the reply of his offer by telegram but B sends reply by letter, A may
reject such acceptance because it is opposed to the prescribed mode of communication.

9. It must not contain cross offers:

When two parties make similar offers to each other, in ignorance of each other’s such offers are
called cross-offers. The acceptance of cross-offers does not result in complete agreement.
Example: On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 per ton.
On the same day, B wrote to A to buy 100 tons of iron at Rs.10,000 per ton. There is no contract
between A & B because the offers wee similar and made in ignorance of the other and so there is
no acceptance of each other’s offer.

ACCEPTANCE

Section 2(b) - "When the person to whom the proposal is made signifies his assent there to
the proposal is said to be accepted. Proposal and acceptance both can be made by words or
by conduct. Without the acceptance of a proposal no agreement comes into existence."

Example :- Suppose Mr. Shah offers to sell his hotel to Mr. Salman for Rs. 50 lac. Mr. Salman
accepts the offer to purchase the hotel for Rs. 50 lac. This is acceptance.

The following are the different legal rules or essentials a valid acceptance:
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1. It must be given by the Offeree:
An offer can be accepted only by the person to whom it is made. It cannot be accepted by an
other person without the consent of offeror. If anyone attempted to accept it no contract with that
person arises.
Example: A sold his business to B without disclosing the fact to his customers. J sent an order
for the supply of goods to A by name. B received the order and executed the same. It was held
that there was no contract between B and  J because J never made any offer to B.
 
2. It must be Absolute & Unconditional:
In order to convert the offer into an agreement the acceptance must be absolute and
unconditional. If the offeree imposes any condition in his acceptance it is not a valid acceptance
but a counter offer.
Example: A offers to sell his watch to B for Rs.500 and B replies that he can buy it only for
Rs.300 thee is a material variation in the acceptance. Therefore, there is no agreement as the
acceptance is not absolute and unconditional.

3. It must be in a Prescribed Manner:

If the offeror in his offer has prescribed any particular manner of acceptance it must be given
according to all that particular manner. If no particular manner is prescribed in the offer then
acceptance should be made in a reasonable manner.
Example: A makes an offer to B and writes “if you accept the offer send your acceptance by
telegram.” B sends his acceptance by registered post. It is not a valid acceptance. But a should
inform B that it is rejected because it not in the prescribed manner.

4. It must be communicated to the Offeror: 

In order to form a contract, the acceptance must be communicated to the offeror in a clear
manner by the offeree or his authorized agent. Mere expression of intention to accept an offer is
not a valid acceptance.
Example: A proposes by letter to purchase B’s house. B expresses his intention to sell it to A but
does not send a reply to him. The house is sold to C despite B’s intention. A has no legal remedy
against B.

5. It may be express or implied:

When an acceptance is given by words spoken or written, it is called express acceptance. When it
is given by conduct, it is called implied acceptance. Sometimes the proposal instead of being
made to a definite person is made to the public.
Example: A wrote a letter to B to sell his cycle for Rs.2,000. B accepted his offer and sent a
letter of acceptance to A. It is an express acceptance.
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6. The acceptance must be given before the lapse of offer:
A valid contract can arise only when the acceptance is given before the offer has elapsed or
withdrawn. An acceptance which is made after the withdrawal of the offer is invalid, and does
not create any legal relationship.

CONSIDERATION

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Presence of consideration is one of the requisites of Valid Contract. Consideration must be of
two directional nature. That means both parties should get benefited mutually. Then only the
Contract becomes capable of creating legal relations. Consideration may be in the form of cash,
goods, act or Abstinence.

Definition of Consideration
According to Section 2(d) : “When at the desire of the promisor, the promisee or any other
person has done or abstained from doing or does or abstains from doing or promise to do or
abstain from doing something, such act or abstinence or promise is called consideration for the
promise”. - Sec.2 (d), Indian Contract Act.

Sec. 2 (d) – Refines consideration as when at the desire of the promise the promisee or any
other person -
(i) Has done or abstained from doing something.
(ii) Does or abstains from doing something.
(iii) Promises to do or abstains from doing something.
Then such an act abstinence or promise is called a consideration

Essentials of Valid Consideration

1. Consideration should be passed at the request of offerer: Offeree should send only such
consideration which is wanted by offerer. In case where offeree sends un-wanted consideration,
he has no right to claim counter consideration.

 A case on this point is Durga Prasad Vs Baldeo. In this case there is a contract between A
and B according to which A has to provide for all requirements to B to run a market and the
profits are to be shared between them. Upon C`s request B makes the market 24 hours market for
a consideration from C. There after C refuses to give remuneration to B on the ground that he (C)
has no consideration from B. Afterwards B claims remuneration from A for rendering additional
work to which A refuses. Here Court decides that the additional work done by B is not wanted
by A and hence B cannot claim anything from A.

2. Consideration may move from promise or any other person:According to Indian law,
consideration may move from promise or any other person. It is specified in Section 2(d) of
Indian Contract Act definition itself. But according to England law – Consideration should move
from promise only. Though it is said so England law has given an exception where consideration
may move from a person other than promise. Here condition is there should be blood relationship
between promisee and that other person who is sending the consideration.

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 A case on this point is Dutton Vs Poole. In this case A has a son called B and a daughter
called C. A wants to conduct his daughter`s marriage out of the sale proceeds of branches of
mango plantation which is inherited property. But B does not like it. A Contact gets formed
between A and B according to the terms of which B has to conduct C`s marriage out of his (B`s)
own savings and A should not destruct the plantation. Afterwards B says to C that it is his (B`s)
obligation to perform her marriage to which C has given her acceptance. Thereafter A becomes
no more and B does not render her (C) marriage on the ground that he (B) has no consideration
from C. Here Court decides that there is blood relation between C and A. B had already obtained
consideration from A in the form of abstinence. There it is decided that B has to perform C`s
marriage.

3. Consideration may be Past, Present or Future: Consideration are of three types namely

Past, Present and Future consideration. The consideration which is sent before formation of
contract is called past consideration. The consideration which gets passed at the time of
formation of contract is called Present Consideration. The Consideration which is to be passed in
future i.e. after the contract is called Future Consideration. As per Indian Law three types of
considerations are Valid. But as per England law Past Consideration is not valid.
i. Past Example :- Mr. Nash lost his car and Mr. Frank a finder delivers it to him. Mr. Frank can
not demand payment of his services due to the past consideration.
ii. Present Example :- Mr. Ali sells a house to Miss Sana. She pays its price immediately. It is
called present consideration.
iii. Future Example :- Mr. Shah promises to deliver a shop to Mr. Khan after a one month for
Rs. 1 lac upon the promise of Mr. Khan to pay the agreed price at the time of delivery. It is called
future consideration.

4. Consideration need not be adequate/ Consideration must be 'something of

value: Consideration of the Contract need not have equal magnitudes. In adequacy of
consideration will not infect Validity of the Contract.
 A case on this point is Thomas Vs Thomas. In this case there is a Contract between A and
B according to the terms of which A has to provide his house to B at a rent of one rupee. Court
decides that it is a Valid Contract because Consideration need not be adequate.

5. Consideration must be Lawful: Presence of unlawful Consideration makes the Contract

illegal and hence Void.
 Example: there is a Contract between X and Z according to which Z has to murder Y for
a Consideration of Rs. 10000 from X. Here Consideration from Z to X is unlawful and it is
illegal contract.

6. Consideration Must be Real: Consideration should not be of illegal contract. It must be a

believable concept.
EXCEPTION TO THE RULE, "NO CONSIDERATION, NO CONTRACT"

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Seven exceptions to the rule when an agreement without consideration will be perfectly
valid and binding
Consideration being one of the essential elements of a valid contract, the general rule is that “an
agreement made without consideration is void.” But there are a few exceptions to the rule, where
an agreement without consideration will be perfectly valid and binding. These exceptions are as
follows:

1. Agreement made on account of natural love and affection [Sec. 25(1)]:

An agreement made without consideration is enforceable if, it is (i) expressed in writing, and (ii)
registered under the law for the time being in force for the registration of documents, and is (iii)
made on account of natural love and affection, (iv) between parties standing in a near relation to
each other. Thus there are four essential requirements which must be complied with to enforce an
agreement made without consideration, as per Section 25(1).
Illustrations: (a) A promises, for no consideration, to give to B Rs 1,000. This is a void
agreement.
(b) A for natural love and affection, promises to give his son B, Rs 1,000. A puts his promise to
B into writing and registers it. This is a contract.12It should, however, be noted that mere
existence of a near relation between the parties does not necessarily import natural love and
affection.

2. Agreement to compensate for past voluntary service: [Sec. 25(2)]

A promise made without consideration is also valid, if it is a promise to compensate, wholly or in
part, a person who has already voluntarily done something for the promisor, or done something
which the promisor was legally compellable to do.

Illustrations: (a) A finds B’s purse and gives it to him. B promises to give A Rs 50. This is a
contract.
(b) A rescued B from drowning in the river, and B, appreciating the service that has been
rendered, promises to pay Rs 1,000 to A. There is a contract between A and B.

3. Agreement to pay a time-barred debt: [Sec. 25(3)]

Where there is an agreement, made in writing and signed by the debtor or by his authorised
agent, to pay wholly or in part a debt barred by the law of limitation, the agreement is valid even
though it is not supported by any consideration.

A time barred debt cannot be recovered and therefore a promise to repay such a debt is without
consideration, hence the importance of the present exception.

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Illustration: A owes Rs 1,000, but the debt is barred by the Limitation Act. A signs written
promises to pay B Rs 500 on account of the debt. This is a contract (Appended to Sec. 25).

4. Completed gift:
A gift (which is not an agreement) does not require consideration in order to be valid. “As
between the donor and the done, any gift actually made will be valid and binding even though
without consideration” [Explanation 1, to Section 25].

In order to attract this exception there need not be natural love and affection or nearness of
relationship between the donor and done. The gift must, however, be complete.

5. Contract of agency:
Section 185 of the Contract Act lies down that no consideration is necessary to create an agency.

6. Remission by the promisee, of performance of the promise:

For compromising a due debt, i.e., agreeing to accept less than what is due, no consideration is
necessary. In other words, a creditor can agree to give up a part of his claim and there need be no
consideration for such an agreement. Similarly, an agreement to extend time for performance of
a contract need not be supported by consideration. (Sec.63)

7. Contribution to charity:
A promise to contribute to charity, though gratuitous, would be enforceable, if on the faith of the
promised subscription, the promisee takes definite steps in furtherance of the object and
undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of
subscription.

In Kedar Nath vs Gorie Mohammad, the defendant had agreed to subscribe Rs 100 towards the
construction of a Town Hall at Howarh. The plaintiff (secretary of the Town Hall) on the faith of
the promise entrusted the work to a contractor and undertook liability to pay him.

The defendant was held liable. But where the promisee had done nothing on the faith of the
promise, a promised subscription is not legally recoverable.

Accordingly, in Abdul Aziz vs Masum Ali the defendant promised to subscribe Rs 500 to a fund
started for rebuilding a mosque but no steps had been taken to carry out the repairs.

The defendant was held not liable and the suit was dismissed. It may thus be noted that
consideration need not always be something in return. It may even take the form of some risk,
loss or responsibility suffered or undertaken by one party (Currie vs Misa).
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 DOCTRINE OF PRIVITY OF CONTRACT

MEANING OF PRIVITY OF CONTRACT

The doctrine of privity of contract means that a contract is a private relationship between the
parties to the agreement and no other person can acquire the rights or liabilities under it. A
contract is an agreement between two or more parties that create an obligation to do or not to do
something. a contract cannot confer right or impose obligation on any person except the parties
to it. Hence, only party to a contract can sue or be sued for the enforcement of the contractual
obligations and a person who is not a party to a contract cannot sue or be sued.

This establishes the rule "stranger to a contract cannot sue".

Ex. - If A makes a contract with B, he comes under a legal obligation to pay damages if he fails
to keep his promise. The enforceability or liability as regards this contract lies firmly in the
hands of A and B to the exclusion of others, this is the foundation of the doctrine of privity of
contract.

A stranger to a contract means the person who is not party to the contract. the stranger to
a contract is known as a third party.

EXCEPTION TO THE DOCTRINE OF PRIVITY OF CONTRACT

The rule that a stranger to a contract cannot sue, is subject to the following exceptions:-

1. In case of beneficiary of a trust :- A trust is always created of some person called as

beneficiary. A beneficiary can file a suit to enforce his right even though he is not a party to the
contract.

Ex. - kalu transferred certain property to balu under the trust, to be held by him for the benefit of
ramu. if balu refuses to give benefit to ramu, then ramu can enforce the agreement even though
he is not the party of contract.

2. In case of family settlement :- when certain arrangement are made for the marriage or
maintenance of a particular member of the family then such person for whose benefit the
provision is made may enforce the contract.

Note - Marriage and family settlement should be in writing.

Ex. - Two brother , on partition of joint property, agreed to invest certain sum of money, in
equal shares, for the maintenance of their mother. later the brothers decided not to part away with
such funds. held, mother was entitled to recover from her sons such amount that was invested by
the sons.

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3. In case of acknowledgement of liability - when the promisor, by his conduct, acknowledges
or himself act as an agent of a third party, a binding obligation is thereby incurred by him
towards the third party.

Ex. - Amar receives some money from akhbar to be paid to the anthony. Amar admits of his
receipt to Anthony. Anthony can recover the amount from Amar, who shall be regarded as the
agent of akhbar.

4. In case of assignment of a contract - Assignement refers to the transferring the right in a

contract to a third person. when a contract is assigned in favor of someone, the assignee can
enforce the contract, even though he is not a party of a contract.

Ex. - the assignee of an insurance policy of a deceased person, Endorsee of bill of exchange can
enforce the contract though he is not a party to a contract.

Note- A contract requiring the use of personal skills (singing, dancing etc.) cannot be assigned.

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 CAPACITY OF PARTIES
 Section 10 of the Contract Act requires that an agreement to be enforceable by law must be
made by the parties competent to contract.
Section 11 of the contract Act provides that “every person is competent to contract, who is
of the age of majority according to the law to which he is subject, and who is of sound mind
and is disqualified from contracting by any law to which he is subject.”
Thus the section declares that a person is incompetent to contract under the following
circumstances:-
(a)   Minor, according to law to which he is subject
(b)   Unsound mind
(c)   Disqualified by law

A. MINOR
Age of Majority: A valid agreement requires that both the parties to the contract should
understand the legal implications of their conduct. They must have mature mind. They should be
major in age.
According to Indian Majority Act, 1875, every person domiciled in India shall be deemed to
have attained his majority when he shall have completed his age of eighteen years and not
before. In case, guardian has been appointed to the minor or where the minor is under the
guardianship of the court of wards, the person shall become major on the completion of the age
of 21 years.
Law Relating to Minor’s Agreement
2. Agreement is absolutely void: An agreement by or with a minor is void-ab-initio. It is
considered to be a nullity and non-existing from the very beginning. Thus, if a party who has
parted with goods, can trace them with the minor then he can recover damages for the breach of
contract or recover their price. Nor can money lent to such a minor be recovered because if that
were to be allowed it would tentamount of enforcing the contract.
Leading case: Mohiri Bibi V. Dharmodus Ghosh.
In this case a minor executed a mortgage for Rs. 20,000 and received Rs.8,000 from the
mortgagee.
The minor sued for setting aside the mortgage. The mortgage claimed the sum which he had
actually paid, i.e. Rs. 8,000. The Privy Council held that as the minor’s contract was absolutely
void, and no question of money could arise in these circumstances.
2.    No ratification on attaining the age of majority: Since the contract is void ab initio it
cannot be ratified by the minor on attaining the age of majority. However, a minor who, on

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attaining majority, takes up and carries on transaction commenced while he was under disability,
will bind himself for the whole transaction.
Example :(A) F, an infant speculated on the stock exchange and became liable to the
stockbrokers for £547. After attaining the age of majority, he gave two bills for £50 each in
satisfaction of the original debt. Held F was not liable on the bills (Smith V. King, (1892) 2 R.B.
543).
(B) A, a minor, takes a loan of Rs. 1,000 from B during his minority. After attaining age of
majority, A applies for a fresh loan of Rs. 1,000 B gives the loan and obtain from A a combined
promissory note of Rs.2,000. This will be taken as a new contract and will therefore, be
enforceable.
3.    No restitution: When a contract becomes void, it is not to be performed by either party. But
if any party has received any benefit under such a contract from the other party he must restore it
or make compensation for it to the other party. This is called restitution.
A minor is not liable to repay any money or compensation for any benefit that he might have
received under a void contract. Court, may however, in certain cases, while ordering for the
cancellation of an instrument at the instance of the minor, require him to pay compensation to the
other party to the instrument under Sec. 33 of the Specific Relief Act.
4.  No Estoppel: A minor is not bound by his mis-representations. If a minor procures a loan or
enters into any other agreement by representing that he he is of full age. He cannot be prevented
from pleading his minority in his defence. He will not be held liable under the contract. It was
held in Sadiq Ali Khan V. Jai Kishore (1928) that a deed executed by a minor is a nullity there
can be no estoppel against a statue, Thus the rule of estoppel as per S.115 of the Evidence Act,
1872 is not applied against a minor.
But this does not mean that the minors are allowed to cheat and to enjoy the fruits of their fraud.
According to S.33 of the Sepcific Relief Act, 1963 Court will order, on equitable considerations
for restitution if the minor is still in possession of the money or things purchased out of it. The
minor shall have no liability if the money or things cannot be traced out in his hands.
Examples:
(a)   A minor borrowed Rs. 1000 on a fraudulent representation that he was a major, and he spent
the whole of the money in a picnic tour of Kashmir. In this case the creditor cannot sue for the
realisation of the money so advanced by him.
(b)   A minor fraudulently over states his age and takes delivery of a motor car after executing a
promissory note in favour of the trader for its price, though the minor cannot be compelled to pay
on the promissory note; but the court on equitable grounds may order the minor to return the car
to the trader, if it is still with the minor.
5.  Minor’s liability for necessities: All contracts relating to the necessities supplied to a minor
according to this status in life are valid. But only the minor’s property is liable for necessities,
and no personal liability is incurred by him.

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Necessities must be things which the minor actually needs; therefore it is not enough that they be
of a kind which a person of his condition may reasonably want for ordinary use, they will not be
necessities if he is already sufficiently supplied with things of that kind, and it is immaterial
whether the other party knows this or not. Objects of mere luxury cannot be necessities nor can
objects which, though of real use, are excessively costly. The fact that buttons are normal part of
any kinds of clothing, but it will not make pearl or diamond buttons necessities.
Example:
A grocer supplies monthly rations for 6 months to B who is aged 17 years. On B’ failure to pay,
he sues him for the realisation of his dues. In this case B’s property is liable for the payment of
credit rations consumed by B during the period of his minority.
Costs incurred in successfully defending a suit on behalf of a minor in which his property was in
jeopardy are “necessities”.
6.    Minor as a beneficiary: All such contracts under which the minor is to receive some benefit
or which are beneficial to him are valid. These contracts include agreements which provide for
the teaching, instruction or employment of a minor. It is to be noted that only his property is
liable for liabilities arising out of such contracts. In no case he will be personally liable.
7.    Minor as Agent: A minor can be appointed as an agent. He can represent his principal in
dealings with other parties. Since minor does not incur any personal liability, he cannot be held
responsible for his any act of negligence or fault. Therefore the principal will be responsible to
the third parties for the acts of his minor agent. He cannot hold the minor agent personally liable
for any wrongful acts. Thus the principal runs a great risk.
8.    Minor as a partner: A minor cannot be a partner of a firm. An agreement of partnership
making a minor a full-fledged partner is invalid between all partners. However, he may be
admitted to the benefits of an already existing partnership firm with the unanimous express
consent of all the existing partners. Such an agreement may be entered into by his guardian on
his behalf with the partners.
A minor admitted to the benefits of partnership, has a right to share the property and profits of
the firm in the proportion agreed upon by him with the other partners. Further, he has a right to
have access to and inspect and copy any of the accounts of the firm but not the books of accounts
of the firm. He liability is limited to the extent of his share in the firm.
9.    Minor as a member of a company: A minor cannot be a member of a company since he is
incompetent to enter into a contract.
A minor may be allotted shares. His name may remain on a company’s register of members, but
during minority he incurs no liability. On attaining majority and becoming aware of the presence
of his name in the register of members, the major has the option to repudiate his shares within a
reaonsable time. Where he does not do so he may safely be taken to have accepted his position.
His liability as a share-holder then commences.
However, it a minor has been allotted shares through ignorance and his name has been entered in
the Register of members both the compoany and the minor, can repudiate the allotment of shares
during his minority.
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10.  Surety for a minor: A person who stands as a surety for a loan taken by the minor will be
liable to the creditor for payment of the loan, even though minor was not liable.
11.  Mortgages and sales in favour of minors : A sale or mortgages of his property by a minor
is void. But a duly executed transfer by way of sale or mortgage in favour of a minor who has
paid the consideration money is not void and it is enforceable by him or any other person on his
behalf. A minor, therefore, in whose favour a deed of sale is executed is competent to sue for the
possession of the property conveyed thereby.
12.  A minor cannot be declared as an insolvent even for his necessities of life. Only his property
is liable even for necessities of life and he, personally, is not liable for the same.

B. UNSOUND MIND

According to Sec.12 “A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of understanding it and of forming a
rational judgment as to its effect upon his interests.”
The Section further states that -
A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract
when he is of sound mind.
A person, who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.
Example:
(a)   A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those
intervals.
(b)   A sane man, who is delirious from fever, or who is so drunk that he cannot understand the
terms of a contract or form a rational judgment as to its effect on his interests, can not contract
during such delirium or drunkenness.
Thus, idiots, lunatics and drunkard are not considered to be persons of sound mind. 
(i)    Idiot  : A person who is devoid of any faculties of thinking or rational judgement. All
agreements, other than those for necessaries of life, with idots are absolutely void.
(ii)   Lunatic: A person whose mental powers are derange is called a lunatic. Lunatic is not a
person who is continuously in state of unsoundness of mind but he may have lucid intervals.
period in which he is to his senses. Agreement with lunatics are void except those made during
lucid intervals and made for necessities of life. However, for necessities of life, the property of
such persons is liable. He does not have personal liabilities.
(iii)  Drunkards: A person under the influence of drink or drugs, stands on the same footing as
lunatic. Mere drunkenness affords no ground for resisting a suit to enforce a contract. But where
the judgment of one party was, to the knowledge of the other part, seriously affected by drink,
equity will generally refuse specific performance at the suit of the other. And, where the court is
satisfied that a contract disadvantageous to the party affected has been obtained by “drawing him
into drink” or that three has been real unfairness in taking advantage of his position, the contract
may be set aside.
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C. DISQUALIFIED BY LAW

Certain types of people are specifically disqualified by special statues from entering into valid
contracts.
(I)   Alien Enemies: A person who is not an Indian citizen is an alien. An alien may be either an
alien friend or an alien enemy. An alien friend is one, whose state or Sovereign is at peace with
India. He has full contractual capacity like an Indian Citizen subject to certain restrictions put by
the Government of India, e.g., and alien cannot acquire any ownership interests in any Indian
ship. On the declaration of war between India and alien’s country he becomes an alien enemy. A
contract with an enemy becomes unenforceable on the outbreak of war. With regard to a contract
with an alien enemy following rules will apply:
(i)    Since trading with an alien enemy is considered illegal, no contract can be made with
an alien enemy during the subsistence of war except with the prior approval from the
Central Government.
(ii)    Contracts entered into before the outbreak of war will be suspended during the course
of war. They will be performed after the war is over.
(II)  Foreign Sovereigns and Ambassadors: Foreign sovereigns and accredited representatives
of foreign states, i.e., Ambassadors. High Commissioners. enjoy a special privilege in that they
cannot be used in Indian courts, unless they voluntarily submit to the jurisdiction of Indian
courts. Though they can enter into contracts through agents residing in India. In such cases the
agent becomes personally liable for the due performance of the contracts.
(III) Corporations: A corporations is only an artificial person created by law, e.g. a company
registered under the Companies Act, public bodies created by statue such as Industrial Finance
Corporation of India, A corporation exists only in contemplation of law, it has no physical body
or form. It can hold property, can sell or purchase goods and can sue or be sued in relation to any
of the contracts entered into by it. Being a mere creature of law it cannot go beyond those
objectives which have been laid down in the charter of its creation, i.e., Memorandum of
Association. Further, its capacity and powers to contract are also limited by its charter. Any
contract beyond such powers is ultra vires and void. Such ultravires contracts can not be ratified
even by the unanimous vote of all its members.
Besides that a Company etc. cannot make certain contracts at all e.g., a contract to marry. 
(IV) Convicts: While undergoing sentence a convict is incapable of entering into a contract. This
inability comes to an end on the expiration of the sentence or if he has been “pardoned”.
(V)  Married womem: Married women are competent to enter into contracts with respect to their
seperate properties provided they are major and are of sound mind. they cannot enter into
contracts with respect to their husband properties.
(VI) Insolvent: An Adjudged insolvent (before an 'order of discharge') is competent to enter into
certain types of contracts i.e., he can incur debts, purchase property or be an employee but he
cannot sell his property which vests in the official receive.

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 FREE CONSENT
Section 13 of the Contract Act defines the term ‘consent’ and lays down that “Two or more
persons are said to consent when they agree upon the same thing in the same sense.”

Thus, consent involves identity of minds or consensus ad-idem i.e., agreeing upon the same thing
in the same sense. If, for whatever reason, there is no consensus ad item among the contracting
parties, there is no real consent and hence no valid contract.

‘Free Consent’ defined. Section 14 lays down that “Consent is said to be ‘free’ when it is not
caused by-
1. Coercion, as defined in Section 15, or
2. Undue influence as defined in Section 16, or
3. Misrepresentation as defined in Section 18, or
4. Fraud, as defined in Section 17, or
5. Mistake, subject to the provisions of Section, 20, 21 and 22.

In the absence of ‘free consent’, the contract may turn out to be either voidable or void
depending upon the nature of the flaw in consent to an agreement is caused by coercion, undue
influence, misrepresentation or fraud, there is ‘no free consent’ and the contract is voidable at the
option of the party whose consent was so caused (Sec. 19 and 19A).

But when consent is caused by ‘bilateral mistake’ as to a matter of fact essential to the
agreement, the agreement is void (Sec. 20). In such a case there is ‘no consent’ at all.

COERCION (SEC. 15)

Coercion simply means forcing a person to enter into a contract.

Example: A, at pistol-point asks B to sell his car (worth Rs. 15,000) for Rs. 1,000 only. Here A
has obtained B's consent by coercion. Had A not threatened B, B would not have agreed to sell
his car.

Definition : Sec. 15 defines coercion as follows:

"Committing or threatening to commit, any act forbidden by the Indian Penal Code, or
unlawful detaining or threatening to detain, any property, to the prejudice of any person
whatever with the intention of causing any person to enter into an agreement."

The properties of coercion are as under:

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1. Committing or threatening to commit any act forbidden by the Indian Penal Code:

If a person commits an act or threatens to commit an act which is forbidden by the Indian Penal
Code, 1860 he is applying coercion. Examples: A threatens to shoot B if he does not sell his
scooter. The consent of B has been obtained by coercion.

2. Unlawful detaining or threatening to detain any property:

If a person unlawfully detains or threatens to detain any property he is applying coercion.

Example: A railway company refused to deliver the goods unless unlawful charges were paid. A
paid the charges to obtain the goods. A can recover the unlawful charges paid by him as his
consent was not given freely.

3. The act of coercion may be directed at any person and not necessarily at the other party
to the agreement:

The Act of coercion may be directed against any person, and not necessarily against the other
party to the contract. Similarly, it need not necessarily proceed from a party to the contract. It
may proceed even from a stranger to the contract. Examples:A threatens to shoot B if C does not
sell his car to A. C agrees to sell the car.

4. The act of coercion must be done with the object of inducing or compelling any person to
enter into an agreement:

It should be noted that it is not necessary that the Indian Penal Code should be applicable at the
place where coercion was employed.

Whether Threat to Commit Suicide Amounts To Coercion : In India, an attempt to commit

suicide is an offence. However, in a landmark judgment, the Supreme Court has held that attempt
to commit suicide is not an offence.

Effect of Coercion

1. The contact becomes voidable at the option of the aggrieved person/party, the aggrieved
party/person has two options (Sec 19)

a. may compel the other party for specific performance (if deems fit) 

b. may set aside the contract

2. Section 64 if the aggrieved party decides to set aside the contract he must restore any benefits
received by him under such contract

Burden of Proof: The party avoiding the contract has to prove that Coercion was exercised upon
him and his consent received is not voluntary or he has not exercised his consent freely.

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 UNDUE INFLUENCE (Sec.16)
Definition as per S.16 (1): "A contract is said to be induced by undue influence where,
(i) the relations subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and
(ii) uses that position to obtain an unfair advantage over the other.
Sec. 16(2) a person is deemed to be in a position to dominate the will of another:-
(a)   where he holds a real or apparent authority over the other, e.g., the relationship
between master and servant, police officer and accused; or
(b) Where he stands in a fiduciary relation to the other, e.g., father and son, doctor and
patient, trustee and beneficiary etc.
(c) When he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
Illustrations
(a)   A, a man enfeebled by desease or age, is induced, by B’s influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his profession services. B employs undue
influence.
(b)   A being in debt to B, the money-lender of his village, contracts a fresh loan on terms which
appear to be unconscionable. It lies on B to prove that the contract was not induced by indue
influence.
Presumption of undue influence
Undue influence is presumed to exist under the circumstances mentioned above in (a), (b) and
(c).
No presumption of undue influence in following cases
(i) Husband and wife
(ii) Mother and daughter
(iii) Grandson and Grandfather
(iv) Landlord and tenant
(v) Creditor and Debtor
In above case undue influences have to be proved.
Effect of Undue Influence (Sec.19-A)
A contract vitiated by undue influence is voidable at the option of weaker party. The court can
set aside such contract-
(i)    Either wholly: or

26
(ii)    Where the weaker party has enjoyed some benefit under the terms of the contract, then
upon just and equitable terms
Burden of proof
In cases where there is a presumption of undue influence the burden of proving that the person
who was in a position to dominate the will of another did not use his position to obtain an unfair
advantage, will lie upon the person who was in a position of dominate the will of another [Sec.
16(3)]. He can rebut and oppose the presumption by arguing
(i) That full disclosure of fact was made
(ii) That the price was adequate
(iii) consent was free

FRAUD [Section 17]

The term 'fraud' means a false representation of fact made willfully with a view to deceive the
other party. Fraud includes following: 

1. Wrong suggestion about a fact, knowing that it is not-true; 

E.g. X sells to Y locally manufactured goods as imported goods charging a higher price, it
amounts to fraud. OR A seller claimed that his projector is made in Singapore, and sold it for Rs.
100,000/- However the fact is that "Projector was made in south India". 

2. Active concealment (Hide) of defect in goods: 

E.g. "A car-painter, uses paint to hide the scratches over the old furniture and sold it claiming
that is Now". This is fraud. OR X a furniture dealer, conceals the cracks in furniture sold by him
by using some packing material and polishing it in such a way that the buyer even after
reasonable examination can not trace the defect, it would tent amount to fraud through active
concealment. 

3. Promise made without intention to perform: 

E.g. "A man and a woman underwent a ceremony of marriage with the husband not regarding it
as a real marriage. Held, the husband had no intention to perform the promise from the time he
made it and hence the consent of the wife was obtained under fraud. OR "A farmer agrees to
supply 100kg potato that will be produced by him out of his field, after three month". Two
months has been lapsed, but the farmer neither implant seeds, nor does cultivation. This is case
of fraud. 

4. Any activity declared fraud as per other law; under companies act and insolvency acts,
certain kinds of transfers have been declared to be fraudulent. 
Note: In case of fraud, the seller is always liable even though buyer has an opportunity to check
the fraud. 

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5. Any activity fitted (supported) to deceive. It covers those acts which deceive but are not
covered under any other clause. 
Can Silence be Fraudulent?
The Explanation to Section 17 deals with cases as to when ‘silence is fraudulent’ or what is
sometimes called ‘constructive fraud.’
1. As a rule mere silence is not fraud because there is no duty cast by law on a party to a
contract to make a disclosure to the other party, of material facts within his knowledge.
Illustration:- A and B, being traders, enter upon a contract. A has private information of a
change in prices which would affect B’s willingness to proceed with the contract. A is not bound
to inform B [Illustration (d) to Section 17].
2. Silence is fraudulent, if the circumstances of the case are such that ‘it is the duty of the
person keeping silence to speak’. In other words, silence is fraudulent in contracts of ‘utmost
good faith’’ i.e., contracts ‘uberrimae fidei.’ The following contracts come within the class of
‘uberrimae fidei’ contracts:
(a) Fiduciary relationship - When the parties stand in a fiduciary relation to each other,
the person in whom confidence is reposed is under a duty to act with utmost good faith
and to make a full disclosure of all material facts concerning the transaction known to
him.
(b) Contracts of insurance - In contracts of marine, fire and life insurance, the insurer
contracts on the basis that all material facts have been communicated to him; and it is an
implied condition of the contract that full disclosure shall be made, and that if there has
been non-disclosure he shall be entitled to avoid the contract.
(c) Contract of marriage engagement - Every material fact must be disclosed by both
parties to a contract of marriage otherwise the other party is justified in breaking off the
engagement
(d) Contracts of family settlements - Contracts of family settlements and arrangements
also require full disclosure of all material facts within the knowledge of the parties to such
contracts.
(e) Share allotment contracts - Promoters and directors, who issue the ‘prospectus’ of a
company to invite the public to subscribe for shares and debentures, possess information
which is not available to general public and as such they are required to disclose all
information regarding the company with strict and scrupulous accuracy
3. Silence is fraudulent where the circumstances are such that “silence is, in itself,
equivalent to speech.” Where, for example, B says to A — “If you do not deny it, I shall
assume that the horse is sound.” A says nothing. Hence A’s silence is equivalent to speech. If the
horse is unsound A’s silence is fraudulent [Illustration (c) to Section 17].
Effect of Fraud

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 A party, who has been induced to enter into a contract by fraud, has the following remedies open
to him:
1. He can rescind the contract i.e., he can avoid the performance of the contract; being voidable
at his option (Sec. 19).
2. He can ask for restitution and insist that the contract shall be performed, and that he shall be
put in the position in which he would have been, if the representation made had been true (Sec.
19).
3. The aggrieved party can also sue for damages
MISREPRESENTATION
Definition According to Section 18 ‘Misrepresentation’ means and includes:
(a) Positive assertion of unwarranted statements of material facts believing them to be true.
If a person makes an explicit statement of fact not warranted by his information (i.e., without any
reasonable ground), under an honest belief as to its truth though it is not true, there is
misrepresentation. Illustration. A says to B who intends to purchase his land, “My land produces
10 quintals of wheat per acre.” A, believes the statement to be true, although he did not have
sufficient grounds for the belief. Later on, it transpires that the land produces only 7 quintals of
wheat per acre. This is a misrepresentation.
(b) Breach of duty which brings an advantage to the person committing it by misleading
the other to his prejudice. This clause covers those cases where a statement when made was
true but subsequently before it was acted upon, it became false to the knowledge of the person
making it. In such a case, the person making the statement comes under an obligation to disclose
the change in circumstances to the other party, otherwise he will be guilty of misrepresentation.
Illustration. A, before signing a contract with B for the sale of business, correctly states that the
monthly sales are Rs 50,000. Negotiations lasted for five months, when the contract of sale was
signed. During this period the sales dwindled to Rs 5,000 a month. A, unintentionally keeps
quite. It was held that there was misrepresentation and B was entitled to rescind the contract
(c) Causing mistake about subject-matter innocently. If one of the parties induces the other,
though innocently, to commit a mistake as to the quality or nature of the thing bargained, there is
misrepresentation. Illustration. In a contract of sale of 500 bags of wheat, the seller made a
representation that no sulphur has been used in the cultivation of wheat. Sulphur, however, had
been used in 5 out of 200 acres of land. The buyer would not have purchased the wheat but for
the representation. There is a misrepresentation.
Effects of Misrepresentation
In case of misrepresentation, the aggrieved party has two alternative courses open to him—
(i) he can rescind the contract, treating the contract as voidable; or
(ii) he may affirm the contract and insist that he shall be put in the position in which he would
have been, if the representation made had been true (Sec. 19).

29
Misrepresentation does not entitle the aggrieved party to claim damages by way of interest or
otherwise for expenses incurred.

MISTAKE [Sec. 20,21,22]

Mistake may be defined as an erroneous belief concerning something. It may be of two kinds:
1. Mistake of law.
2. Mistake of fact.
Mistake of Law
Mistake of law may be of two types:
1. Mistake of law of the country; - Everyone is deemed to be conversant with the law of his
country, and hence the maxim “ignorance of law is no excuse.” Mistake of law, therefore, is no
excuse and it does not give right to the parties to avoid the contract. Stating the effect of mistake
as to law, Section 21 declares that “a contract is not voidable because it was caused by a mistake
as to any law in force in India.” Accordingly, no relief can be granted on the ground of mistake
of law of the country. Illustration: - (Sec. 21). A and B make a contract grounded on the
erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is
not voidable (i.e., the contract is valid).
2. Mistake of foreign law. -Mistake of foreign law stands on the same footing as the ‘mistake of
fact’. Here the agreement is void in case of ‘bilateral mistake’ only, as explained under the
subsequent heading.
Mistake of Fact
Mistake of fact may be of two types:
1. Bilateral mistake;- Where the parties to an agreement misunderstood each other and are at
cross purposes, there is a bilateral mistake.
The following three conditions must be fulfilled:
(i) Both the parties must be under a mistake i.e., the mistake must be mutual. Both the parties
should misunderstand each other so as to nullify consent. Illustration: M, having two houses A
and B, offers to sell house A, and N not knowing that M has two houses, thinks of house B and
agrees to buy it. Here there is no real consent and the agreement is void.
(ii) Mistake must relate to some fact and not to judgment or opinion etc. An erroneous opinion as
to the value of the thing which forms the subject-matter of the agreement is not to be deemed a
mistake as to a matter of fact (Explanation to Section 20).
Illustration: If A buys a motorcar, thinking that it is worth Rs 80,000, and pays Rs. 80,000 for it,
when it is only worth Rs 40,000, the contract remains good. A has to blame himself for his
ignorance of the true value of the motorcar and he cannot avoid the contract on the ground of
mistake.

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(iii) The fact must be essential to the agreement i.e., the fact must be such which goes to the very
root of the agreement.
2. Unilateral mistake. Where only one of the contracting parties is mistaken as to a matter of
fact, the mistake is a unilateral mistake. Regarding the effect of unilateral mistake on the validity
of a contract. Section 22 provides that “a contract is not voidable merely because it was caused
by one of the parties to it being under a mistake as to a matter of fact.” Accordingly, in case of
unilateral mistake a contract remains valid unless the mistake is caused by misrepresentation or
fraud, in which case the contract is voidable at the option of aggrieved party. On the basis of
judicial decisions, however, in certain exceptional cases even an unilateral mistake, whether
caused by fraud, misrepresentation, etc., or otherwise, may make an agreement void ab-initio.

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 LEGALITY OF OBJECT
The object or consideration of an agreement must be lawful, in order to make the agreement a
valid contract, for, Section 10 lays down that all agreements are contracts if made for lawful
consideration and with a lawful object.

Section 23 declares what kinds of considerations and objects are not lawful. If the object or
consideration is unlawful for one or the other of the reasons mentioned in Section 23, the agreement
is ‘illegal’ and therefore void (Sec. 23).

WHAT CONSIDERATIONS AND OBJECTS ARE UNLAWFUL?

1. If it is forbidden by law. This clause refers to agreements which are declared illegal by law.
If the consideration or object for a promise is such as is forbidden by law, the agreement is void.
An act or an undertaking is forbidden by law:

(a) when it is punishable by the criminal law of the country, or

(b) when it is prohibited by special legislation or regulations made by a competent
authority under powers derived from the legislature.
Illustrations. (a) Agreements for sale or purchase above the standard price fixed by the
relevant law (e.g., Essential Commodities Act. 1955) with regard to a controlled article are
illegal and hence void (Sita Ram vs Kunj Lal4).
2. If it is of such a nature that, if permitted, it would defeat the provisions of any law.
This clause refers to cases where the object or consideration of an agreement is of such a
nature that, though not directly forbidden by law, it would indirectly lend to a violation of law,
whether enacted or otherwise (e.g., Hindu and Mohammedan Laws). Such an agreement is
also void.
Illustrations - agreement by the debtor not to rise the plea of limitation, should a suit have
to be filed, is void as tending to limit the provisions of the Limitation Act (Rama Murthy
vs Gopayya8).
3. If it is fraudulent. An agreement, whose object or consideration is to defraud others, is
unlawful and hence void.

Illustrations. (a) A, promises to pay Rs 200 to B, if B would commit fraud on C. B agrees.

B’s agreeing to defraud is unlawful consideration for A’s promise to pay. Hence the
agreement is illegal and void.

4. If it involves or implies injury to the person or property of another. If the object or

consideration of an agreement is injury to the person or property of another, it is void, being an
unlawful agreement.

Illustrations - An agreement to put certain property to fire is unlawful and void under
this clause.

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5. If the court regards it as immoral. An agreement whose object or consideration is immoral,
is illegal and therefore void.

Illustrations. (a) A, agrees to let her daughter to B for concubinage. The agreement is void,
because it is immoral, though the letting may not be punishable under the Indian Penal Code.

6. If the court regards it as ‘opposed to public policy.’ An agreement is unlawful if the court
regards it as ‘opposed to public policy.’ Public policy is that principle of law which holds that
no citizen can lawfully do that which is injurious to the public or is against the interests of the
society or the State.

On the basis of decided cases on the subject the following agreements have been held to be
against public policy:

(i) Trading with an alien enemy. It is now fully established that trading with an alien
enemy (i.e., a citizen of the other country at war with the State) is against public policy
in so far as it tends to aid the economy of the enemy country.

(ii) Agreements interfering with the course of justice. An agreement the object of
which is to interfere with the course of justice, e.g., an agreement not to disclose
misconduct to the other interested party or an agreement to influence a judge to induce
him to decide the case in a party’s favour, is obviously opposed to public policy and is
void.

(iii) Agreements for stifling criminal prosecution. It is well settled law that if a person
has committed a crime, he must be punished. Hence any agreement which seeks to
prevent the prosecution of a guilty party is opposed to public policy and is void

(vi) Agreements creating an interest opposed to duty. An agreement which tends to

create a conflict between interest and duty is illegal and void on the ground that it is
opposed to public policy.Illustrations. (a) A, agrees to pay B, the lieutenant colonel in
the army. Rs 50,000 if he will assist her brother to desert the army. The object of the
agreement is opposed to public policy and hence the agreement is void and illegal.

(viii) Agreements interfering with parental duties. A father, and in his absence the
mother, is the legal guardian of his/her minor child. The authority of a guardian is to be
exercised in the best interest of the child, in accordance with good public morals.
Illustration. For monetary consideration, A agrees to place his daughter at the disposal
of B to be married as B likes. The agreement is illegal and void as it would interfere
with A’s parental duty to select a husband in the best interests of the girl (Atma Ram
vs Banku Mal31).

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 PERFORMANCE OF CONTRACT

The term ‘Performance of contract‘ means that both, the promisor, and the promisee have
fulfilled their respective obligations, which the contract placed upon them. For instance, A visits
a stationery shop to buy a calculator. The shopkeeper delivers the calculator and A pays the
price. The contract is said to have been discharged by mutual performance.

Promises bind the representatives of the promisor in case of the death of the latter before
performance, unless a contrary intention appears in the contract.
Thus, it is the primary duty of each contracting party to either perform or offer to perform its
promise. For performance to be effective, the courts expect it to be exact and complete, i.e., the
same must match the contractual obligations. However, where under the provisions of the
Contract Act or any other law, the performance can be dispensed with or excused, a party is
absolved from such a responsibility.

Example
A promises to deliver goods to B on a certain day on payment of Rs 1,000. A expires before the
contracted date. A‘s representatives are bound to deliver the goods to B, and B is bound to pay
Rs 1,000 to A‘s representatives.

Types of Performance
Performance, as an action of the performing may be actual or attempted.

1. Actual performance:
When each party to a contract fulfils his obligation arising under the contract within the time and
in the manner prescribed, it amounts to actual performance of the contract and the contract
comes to an end or stands discharged.
But if one party only performs his promise, he alone is discharged. Such a party gets a right of
action against the other party who is guilty of breach.

2. Attempted performance or tender: [Sec. 38]

When the promisor offers to perform his obligation under the contract, but is unable to do so
because the promisee does not accept the performance, it is called “attempted performance” or
“tender.”

Thus “tender” is not actual performance but is only an “offer to perform” the obligation under
the contract. A valid tender of performance is equivalent to performance.

Essentials of a valid tender:

A valid tender or offer of performance must fulfil the following conditions.

1. It must be unconditional:

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A conditional tender is no tender. For example, A, who is a debtor of company B, offers to pay if
shares are allotted to him at par. It is no tender.

2. It must be made at proper time and place:

A tender before or after the due date or at a place other than agreed upon is not a valid tender.
For example, A is a tenant of B. He offers him rent at a marriage party. B is not bound to accept
as the tender is not made at a proper place.

3. It must be of the whole obligation contracted for and not only of the part:
Thus deciding of his own to pay in installments and offering the first installment was held an
invalid tender as it was not of the whole amount due. (Behari Lai vs Ram Gulam).

4. If the tender relates to delivery of goods:

It must give a reasonable opportunity to the promisee for inspection of goods so that he may be
sure that the goods tendered are of contract description.

5. It must be made by a person who is in a position and is willing to perform thepromise:

A tender by a minor or idiot is not a valid tender.

6. It must be made to the proper person, i.e., the promisee or his duly authorised agent:
Tender made to a stranger is invalid.

7. If there are several joint promisees:

An offer to any one of them is a valid tender. (But the actual payment must be made to all joint
promisees, and not to any one of them, for a valid discharge of the contract, for, Section 45
provides that when a promise is made to two or more persons jointly, the right to claim
performance rests with all of them jointly.)

8. In case of tender of money, exact amount should be tendered in the legal tender money:
Tendering a smaller or larger amount is an invalid tender, e.g., tendering Rs 100 currency note to
a conductor of a bus for a two rupees ticket is not a valid tender. Similarly, a tender by a cheque
is invalid as it is not legal tender but if the creditor accepts the cheque, he cannot afterwards raise
an objection.

Effect of refusal to accept a valid tender (Sec 38):

The effect of refusal to accept a properly made “offer of performance” is that the contract is
deemed to have been performed by the promisor, i.e., tenderer, and the promisee can be sued for
breach of contract. A valid tender, thus, discharges the contract.

Exception:
Tender of money, however, does not discharge the contract. The money will have to be paid
even after the refusal of tender, of course without interest from the date of refusal. In case of a
suit, cost of defence can also be recovered from the plaintiff, if tender of money is proved. (Jagat
Tarini vs Naba Gopal).

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 DISCHARGE OF A CONTRACT

Discharge of a contract means termination of the contractual relations between the parties to the
contract. The contract may be discharged in the following six modes as shown in figure:-

Various modes of Discharging of a Contract

Discharge of a contract means termination of the contractual relations between the parties to a
contract. A contract is said to be discharged when the rights and obligations of the parties under
the contract come to an end. Modes of discharge of contract 

1. Discharge by Performance 
A contract can be discharged by performance in any of the following ways: 

(a) By Actual Performance - A contract is said to be discharged by actual per-formance when

the parties to the contract perform their promises in accordance with the terms of the contract. 

(b) By Attempted Performance or Tender - A contract is said to be discharged by attempted

performance when the promisor has made an offer of performance to the promisee but it has not

36
been accepted by the promisee. 

2. Discharge by Mutual Agreement 

Since a contract is created by mutual agreement, it can also be discharged by mutual agreement.
A contract can be discharged by mutual agreement in any of the following ways: 

a) Novation [Section 62]- Novation means the substitution of a new contract for the original
contract. Such a new contract may be either between the same parties or between different
parties. The consideration for the new contract is the discharge of the original contract. 
Illustrations:
(a) A is indebted to B and B to C. By mutual agreement B’s debt to C and B’s loan to A are
cancelled and C accepts A as his debtor. There is novation involving change of parties.

(b) Rescission [Section 62] - Rescission means cancellation of the contract by any party or all
the parties to a contract. 
Illustration:
A promises to deliver certain goods to B on a certain date. Before the date of performance, A and
B mutually agree that the contract will not be performed. The contract stands discharged by
rescission.

(c) Alteration [Section 62] - Alteration means a change in the terms of a contract with mutual
consent of the parties. Alteration discharges the original contract and creates a new contract.
However, parties to the new contract must not change. 

(d) Remission [Section 63] - Remission means acceptance by the promisee of a’ lesser
fulfillment of the promise made. According to Section 63, “Every promisee may dispense with or
remit, wholly or in part, the performance of the promise made to him, or may extend the time for
such performance, or may accept instead of it any satisfaction which he thinks fit.” 
Illustrations:
(a) If the promisee agrees to accept Rs 2,000 in full satisfaction of a claim of Rs 5,000, the
promise is enforceable and the promisee cannot in future bring a suit for the recovery of Rs
5,000.

(e) Waiver - Waiver means intentional relinquishment of a right under the con-tract. Thus, it
amounts to releasing a person of certain legal obligation under a contract. 
Thus, where A promises to tailor a shirt for B if he will sing a song at his birthday party and
accordingly B sang the song but afterwards B forbids A to tailor the shirt, to which A consents,
the contract is terminated by waiver.

3. Discharge by Operation of Law 

A contract may be discharged by operation of law in the following cases: 

(a) By Death of the Promisor A contract involving the personal skill or ability of the promisor
is discharged on the death of the promisor. 

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(b) By Insolvency When a person is declared insolvent, he is discharged from his liability up to
the date of his insolvency. 
(c) By Unauthorised Material Alteration If any party makes any material alteration in the
terms of the contract without the approval of the other party, the contract comes to an end.

(d) Merger: Where an inferior right contract merges into a superior right contract, the former
stands discharged automatically.
Illustrations:
(a) Where a man holding property under a contract of tenancy buys the property, his rights as a
tenant are merged into the rights of ownership and the contract of tenancy stands discharged by
operation of law. (b) Where a part-time lecturer is made full time lecturer, the contract of part-
time lecturer ship is discharged by merger.

4. Discharge by Impossibility of Performance 

The effects of impossibility of the performance of a contract may be discussed under the
following two heads: 

(a) Effects of Initial Impossibility - [Section 56] Initial impossibility means the impossibility
existing at the time of making the contract. The effects of initial impossibility are as under void-
ab-initio. 

Such promisor must compensate for any loss which such promisee sustains through the non-
performance of the promise.

Example: - A contracts to marry B, being already married to C, and being forbidden by the law
to which he is subject to practice polygamy. A must make compensation to B for the loss caused
to her by the non-performance of his promise.

(b) Effects of Supervening Impossibility -Section 56, Para 2, declares: “A contract to do an act

which, after the contract is made, becomes impossible, or, by reason of some event which the
promisor could not prevent, unlawful, becomes void when the act becomes impossible or
unlawful”.

Cases where the doctrine of supervening impossibility applies:

A contract will be discharged on the ground of supervening impossibility in the following cases:

1. Destruction of subject-matter: When the subject-matter of a contract, subsequent to

its formation, is destroyed, without the fault of the promisor or promisee, the contract is
discharged. Note that it is so only when specific property or goods are destroyed which
cannot be regained.
Illustrations:
(a) A music hall was agreed to be let out for a series of concerts on certain days. The hall
was destroyed by fire before the date of the first concert. The plaintiff sued the defendant

38
 for damages for the breach of contract. It was held that the contract has become void and
the defendant was not liable (Taylor vs Caldwell

2. Failure of ultimate purpose: Where the ultimate purpose for which the contract was
entered into fails, the contract is discharged, although there is no destruction of any
property affected by the contract and the performance of the contract remains possible in
literal sense. The leading case of Krell vs Henry is a good illustration on the point:
H hired a room in London from K with the object; as both parties well knew; of using the
room to view the intended coronation procession of King Edward VII on a particular date.

By reason of the King’s illness the procession was postponed. H consequently could not
use the room although he could go there and sit but with no purpose as there was no
procession. K filed a suit for the recovery of rent.

It was held that H need not pay the rent as the contract was discharged on failure of the
ultimate purpose or on postponement of the procession which was the foundation of the
contract.

3. Death or Personal Incapacity of Promisor: Where the performance of a contract

depends upon the personal skill or qualification or the existence of a given person, the
contract is discharged on the illness or incapacity or the death of that person.
Illustrations:
(a) A and B contract to marry each other. Before the time fixed for the marriage, A goes
mad. The contract becomes void [Illustration (b) to Section 56],

4. Change of law: A subsequent change in law may render the contract illegal and in
such cases the contract is deemed discharged. The law may actually forbid the doing of
some act undertaken in the contract, or it may take from the control of the promisor
something in respect of which he has contracted to act or not to act in a certain way
Illustrations:
(a) A sold to B 100 bags of wheat at Rs 700 per bag. But before delivery the Government
rendered the sale and purchase of wheat by private traders illegal under the Defence of
India Rules. The contract was discharged by impossibility created by subsequent change
in law.

5. Outbreak of war: All contracts entered into with an alien enemy during war are illegal
and void ab-initio. Contracts entered into before the outbreak of war are suspended during
the war and may be revived after the war is over provided they have not already become
time-barred.
It may be noted that if war is declared between the countries of the contracting parties then
only the contract is suspended during war.

5. Discharge by Lapse of Time 

A contract is discharged if it is not performed or enforced within a specified period, called period

39
of limitation. The Limitation Act, 1963 has prescribed the different periods for different
contracts, e.g. period of limitation for exercising right to recover a debt is 3 years, and to recover
an immovable property is 12 years. The contractual parties cannot exercise their rights after the
expiry of period of limitation. 

6. Discharge by Breach of Contract 

A contract is said to be discharged by breach of contract if any party to the contract refuses or
fails to perform his part of the contract or by his act makes it impossible to perform his
obligation under the contract. A breach of contract may occur in the following two ways: 

(a) Anticipatory Breach of Contract - Anticipatory breach of contract occurs when party
declares his intention of not performing the contract before the performance is due. 

(b) Actual Breach of Contract - Actual breach of contract occurs in the follow-ing two ways: 

(i) On Due Date of Performance: If any party to a contract refuses or fails to perform his part of
the contract at the time fixed for performance, it is called an actual breach of contract on due date
of performance. 
(ii) During the course of performance

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 BREACH OF CONTRACT

Breach means violation of law. The breach of contract means to break the contract or not to act
upon the contract. When any party fails to perform its duties in a lawful contract it is called
breach of contract. The injured party has a right to take action against the party who has failed to
perform his part of contract.

REMEDIESFOR BREACH OF CONTRACT or RIGHTS OF AGGRIEVED PARTY :-

On the breach of contract following remedies are available to an injured party.

1. Rescission Of The Contract :-

When there is a breach of contract by one party, the other party may rescind the contract and
need not perform his part of obligations under the contract and may sit quietly at home if he
decides not to take any legal action against the guilty party.

But in case the aggrieved party intends to sue the guilty party for damages for breach of contract,
he has to file suit for rescission of the contract; and becomes entitled to compensation for any
damages which he has sustained through the nonfulfilment of the contract. (Sec. 75)

Example: - Mr. Sanjay pledges the defence savings certificates to Mr. Panday and get loan. But
Mr. Sunjay does not return the loan. Mr. Panday may file a suit for recession of the contract
responsibility to return the defence savings certificates on payment.

3. Suit for damages:-

If contract is broken, the injured party has a remedy to claim for damages and losses suffered by
him. Injured party is entitled to receive compensation of loss from the party who has broken the
contract. The aim of this remedy is to provide the injured party the same benefits which it would
receive in case of the performance of contract.

Following are important types of damages:

i. Ordinary or General Damages: - If injured party suffers a loss due to non performance of the
contract it is called general damage. The injured party can recover from the guilty party the
ordinary damages suffered by him. These are such damages as may fairly and reasonably be
considered as arising naturally and directly in the usual course of things from breach of contract
itself.

Ordinary damages = contract price – market price (at the date of breach)

Example: - Mr. Robin contracts to pay 3 lac to Mr. Peter on 1st April. Mr. Robin does not pay
the money on that day. Mr. Peter is unable to pay her debts and suffer a loss. Mr. Robin is liable
to pay Mr. Peter principal amount and also interest on it.

41
ii. Special Damage: - Under special circumstances special damage takes place from breach of
contract. Special damages are those which arise on account of the special or unusual
circumstances affecting the plaintiff. In other words, they are such remote losses which are not
the probable consequences of the breach of contract. These only are claimed only if special
circumstances which would result in a special loss in case of breach of contract are brought to
the notice of the other party.

Example: - If the machinery of any factory arrives late and due to this reason one party suffers a
loss or profits it is called special damage.
iii. Exemplary Damages: - These damages are awarded in order to punish the guilty party for
the breach of contract and not to compensate the loss of the injured party.

These damages are awarded in dishonor of cheque and case of breach of contract to marry.

iv. Nominal Damages: - When the injured party suffers no loss the contract may award him
nominal damages to recognize his right. Nominal damages are those which are awarded only for
name sake. These are neither awarded by way of compensation to the aggrieved party nor by
way of punishment to the guilty party. These are awarded to establish the right to decree for
breach of contract when the injured party has not actually suffered any real damage and consist
of very small sum of money say, a rupee one or two.

3. Suit For Injunction :-

Injunction means the order of the court. It may be used to prevent any wrongful act. In case of
contract it is used to prevent that act which is involved in breach of contract.

Example :- Suppose Mr. Yuvraj a film producer contracts with Miss. Neha to sign in his movies
for ten years and not to sign in any other film. After one year she contacts with other film
producer Mr. Sethy during the period of contract. The court may issue injunction on a suit by Mr.
Yuvraj to restrain Miss. Neha from signing in film of Mr. Sethy.

4. Suit for Specific Performance :-

Specific performance means the actual carrying out of the contract as agreed. Under certain
circumstances an aggrieved party may file a suit for specific performance, i.e., for decree by the
court directing the defendant to actually perform the promise that he has made.

A degree of specific performance is an order of the court. It is usually granted in those contracts
related to house, land and plot. In some cases compensation to pay. So court may issue the
degree of specific performance and can compel to defaulter party the performance of contract.

Example :- Mr. Tipu agrees to sell his house to Mr. Amir, who agrees to purchase. But due to
some reasons Mr. Tipu commits breach . At the suit of Mr. Amir court may ask Mr. Tipu to carry
out the contract.

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5. Suit upon Quantum Merit :-

It means "So much as deserves". The phrase quantum meruit means “as much as is earned” or
“in proportion of work done.”

A right to sue upon quantum meruit usually arises where after part performance of the contract is
done by one party, there is a breach of contract, or the contract is discovered void or becomes
void.
This remedy is available of either without claiming damages (i.e., claiming reasonable
compensation only for the work done) or in addition to claiming damages for breach (i.e.,
claiming reasonable compensation for part performance and damages for the remaining
unperformed)

The aggrieved party may file a suit upon quantum meruit and may claim payment in proportion
to work done or good supplied.

We can explain it by the following example:

Example :- Suppose Mr. Ali entered into contract with Mr. Shawn that they will construct one
room jointly. Mr. Ali will construct the wall while Mr. Shawn will build the roof. Now Mr. Ali
completes his job but Mr. Shawn fails to build the roof of the room. Now in this case Mr. Ali is
entitled to receive the award according to his work done by him. This claim of Mr. Ali will be
called a claim of "Quantum Merit." The court will award to Mr. Ali keeping in view the work or
services performed by him.

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