Law is a basic necessity of every civilized society.

Law is the bundle of rules and principles to be

followed by the members of the society. When there is a law in a country, it brings uniformity and
balance in human actions, and provides justice to the aggrieved persons.

According to Holland, “Law is a rule of external human action enforced by the sovereign political
authority.”

General Laws' are applicable to all forms of business organisation, irrespective of their size, ownership
etc. These general laws are called Mercantile laws, Business laws, and Commercial laws.

Business law concerns the rights and obligations of mercantile transactions among mercantile
persons. 'Mercantile Persons' refer to businessmen engaged in trade and commerce. They may be sole
traders, partnership concerns or joint-stock companies.

(a) National Law and

National Law is also called State law or Municipal law. Laws applicable within a State is called
Municipal law which is again divided under two heads

(1) Public Law

Public law applies to the States and the people residing in a State. It determines the organisation and
functioning of the State. It also decides the relation between the State and the subjects in the State.
Public law can be

(a) Constitutional law- Constitutional law prescribes the nature of the State and the structure of the
Government.

(b) Administrative law-Administrative law decides powers and functions of the administration, limits of
their power, method and procedure of administration and the methods of controlling their power
through legal measures.

(c) Criminal law-Criminal law gives clear cut definitions of offences, and chalks out punishments for
breaking the law, specifying the nature and period of punishment.

(2) Private Law.

Private law governs the relations of citizens with one another. It also controls the relationship putting
limits beyond which individuals cannot go. When a dispute arises among private individuals, the State
intervenes and decides who is right and what is wrong.Private law can be classified as the law of
persons, law of property, law of delegations, conflict of laws, contracts, quasi-contracts and tort
(breach of duty leading to liability for damages).

(b) International Law.

International law can be studied under two heads:

(1) Public International Law

(2) Private International Law

Public international law refers to the body of rules and regulations which governs the contract and
relations of States with one another.

The law relating contract in India is contained in the Indian contract Act, which came in to force on the
first day of Sept 1872. The act is extended to the whole of India except the state of Jammu and
Kashmir.

Generally contract may be defined as an agreement which creates rights and obligations between the
parties. According to Salmond, “A contract is an agreement creating and defining obligation between
the parties.”
Section 8(h) of the Indian Contract Act defines contract as an agreement which is enforceable by law

The term agreement is defined to sec 2 (e) of the Indian contract Act as “Every promise or set promises,
forming the consideration for each other”. Agreement involves a valid offer by one party a valid
acceptance by the other party.

1. Agreement or Offer and acceptance: - There must be an agreement between the parties of a contract.
Agreement is created by offer and acceptance. Therefore an agreement is = offer +acceptance.
2. Lawful consideration: Consideration means something in return. It may be past, present of future
and must be real and lawful. A contract without consideration is not a contract at all.
3.Capacity of parties: The parties to an agreement must be capable of entering into a valid contract.
(a) Persons of unsound mind
(b) Persons disqualified by law
(c ) Minors
4. Free consent: For the formation of a contract one person must give his consent to another person.
The consent thus obtained must be a free consent. Consent is said to be free if it is not caused by
coercion, undue influence, fraud, misrepresentation or mistake.
5. Consensus ad idem: It means the two parties of the contract must agree upon the subject matter of
the contract in the same manner and in the same sense. That is there must be identity of minds among
the parties regarding the subject matter of the contract.
6. Lawful object: The object of an agreement must be lawful. It must not be illegal or immoral or
opposed to public policy. If it is unlawful, the agreement becomes void.
7. Not declared to be void: There are certain agreements which have been expressly declared void by
the law. It includes:
(a)Wagering agreement
(b) Agreement in restraint to marriage
(c) ) Agreement in restraint of trade etc.
8. Certainty and possibility of performance: - The terms of the contract must be precise and certain.
They should not be vague. The terms of agreement must be capable of performance.
9.An intention to create legal relationship: - There should be an intention between the parties to create
a legal relationship. Mere informal promise is not to be enforced. Social agreements are not to be
enforced as they do not create any legal obligations.

1. Formation of Contract
2. Performance of Contract
3. Extend of validity of Contract
:-

a. Express contract: - These are the contracts, which are entered into between the parties, by words
spoken or written.
b. Implied contract: - Implied contracts are formed on the basis of implied promises on the part of
parties. When the proposal or acceptance is made otherwise than in words, the contract formed is
called implied contract.
c. Quasi contracts:-In certain circumstances law itself creates legal rights and obligationsagainst the
parties. These obligations are known as quasi contracts. It is also known as constructive contract.

a. Executed Contract:-Executed contract is one that has been performed. If both parties of a contract
have performed their respective obligations, contract is known as executed contract.
b. Executory contract:-An executor contract is one in which both the parties have not yet performed
their obligations either wholly or partly
C. Unilateral contract – where one part has performed his obligation either before or at the time of
when the contract comes into existence.
d. Bilateral contract –when the obligation of both parties is outstanding at the time of formation of the
contract, it is known as bilateral contract.

a. Valid contract:- Contract is said to be valid if it satisfies all conditions required for its enforceability.
In other words an agreement enforceable by law is a valid contract.
b. Void Contract: A contract which ceases to be enforceable by law become void. No party has right to
claim it in the court of law. A void contract not necessarily be unlawful but it has no legal effects.
c. Voidable contract:- According to sec.2(i) “ An agreement which is enforceable by law at option of
one or more parties, but not at the option of other or others is a voidable contract.” Generally a contract
becomes voidable when the consent of one of the parties to the contract is obtained by coercion,
undue influence or misrepresentation.
d. Illegal contracts: - The contract is said to be illegal, if its object is illegal.
e. Unenforceable contract: - It is a contract, which is valid, but not capable of being enforced in a court
of law because of some technical defects. Technical reasons affecting validity of contract may be that
contract is not in writing or is not registered or has no adequate stamp duty on it etc.

Void agreements: “An agreement not enforceable by law is said to be void”. A void agreement has no
legal significance from the beginning. No contract comes out from a void agreement ie it is void ab
initio
Illegal agreements: - An agreement which is either prohibited by law or otherwise against the policy of
law is an Illegal agreement. All illegal agreements are null and void but void agreements are not illegal

According to section 2 (h) of the Indian Contract Act, “an agreement enforceable by law is acontract”.
That is all agreements are not contract. An agreement, in order to become a contract must satisfy
certain conditions which are the essential elements of a contract.

Every promise and every set of promises forming the consideration for each other is an agreement
while, an agreement which is enforceable by law is contract.
2.Agreement is sum total of offer and acceptance, on the other hand, contract is the agreement and its
enforceability at law.
3.Certain agreement may not create any legal obligation while, all contracts necessarily create legal
obligations.
4.An agreement is not always binding the contract but a contract is always binding on the concerned
parties
5.All agreement are not contract, on the other hand all contracts certainly become agreement.

1.A contract become void when it ceases to enforceable by law, while an agreement which is
enforceable by law at the option of one party, but not the others is a voidable contract
2.A void contract cannot be enforced but a voidable contract can be enforced if the aggrieve party
elects to carry out the contract
3.A void contract is valid at the time of formation but later it becomes void due certain reason while a
contract is voidable because the consent of one part is not a free consent.
4.No party gains any option and it has no legal effects, but aggrieved has the option either elect to be
continue the contract or to cancel.
5.A void contract is void in itself and a voidable contract can be void at the option of aggrieved party.

According to sec. 2 (a) of the Contract Act, “When one person signifies to another his willingness to do
or abstain from doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.”
Offer is one of the essential elements of a contract. The person making the offer or proposal is called
the offeror proposer orpromisor and the person to whom the proposal is made is called ‘the propose’ or
offeree.

• In an offer one party must express his willingness for doing or not doing a thing
• It must be made to another person
• Offer is made with a view to know the assent of the other person.
• There must be an intention to create legal relationship.

1. Express offer – an offer made by words, spoken or written is an express offer.

2.Implied offer - An implied offer is one which may be gathered from the conduct of the party or the
circumstances of the case
3.Specific offer: - When an offer is made to a specific person or class of persons, such offer is known
as specific offer. The specific offer can be accepted only by that particular person or organization.
4. General offer: It is an offer which is made to a group of people or public at large. Such offer can be
accepted by any member of that group.
5. Cross offer: - When two parties exchange identical offers with each other, in ignorance of each other’
s offer, the offers are cross offer.
6. Counter offer: Incomplete and conditional acceptance of an offer is known as counter offer. In other
words, when an original offer is rejected and a new offer is made, it is known as counter offer.
7. Standing offer (Tender):- An offer for a continuous supply of a certain article at a certain rate over a
definite period is called a standing offer.

1.The terms of an offer must be clear and certain: - The terms of an offer should not be indefinite,
vague or loose.
2.Offer may be express or implied: -

3. The offer must be communicated to the offeree: - An offer must be communicated to the offeree.
Until an offer is made known to the offeree, he does not know what he has to accept.
4. Legal relationship is required: - A proposal will not become a promise even after it has been
accepted unless it was made with a view to create legal obligations.
5. Offer may be conditional: - An offer can be made subject to a condition. It can be accepted only
subject to those conditions
6. Offer must be made with a view to obtaining the assent of the other party
7. Invitation to an offer is not an offer:Offer is different from invitation to an offer. Quotations,
catalogues of goods, advertisement for tender etc are not actual offer. They are mere invitation to offer.
8. Offer may be specific or general: - The offer being made to a particular individual or organization is
known as specific offer. On the other hand, if an offer has been made to a group of people or public at
large, such offer is known as general offer.

1. Revocation by Communication of notice (Sec. 6(1):-A person who makes an offer can withdraw it at
any time before acceptance. Such revocation may be express or implied.
2. By lapse of time (Sec.6 (2):- An offer lapses if it is not accepted within the prescribed time. Where no
time is fixed, it should be accepted within a reasonable time.
3. Death or insanity of an offeror:- An offer lapses by the death or insanity of the offeror, if the fact of
his death or insanity comes to the notice of the acceptor before acceptance. 4.
4.Non fulfillment of pre requisite conditions: - When the offeror has put some conditions, which are
prerequisites to acceptance, such conditions must be fulfilled before accepting offer. Non fulfillment of
such conditions will lead to revocation of an offer.
5. By counter offer: - The offer will be revoked if the offeree makes a counter offer.

6. Offer not accepted according to the mode prescribed:- Sometimes the offer or may prescribe
particular mode in which offeree must send his acceptance

7.Subsequent Illegality or destruction of subject matter: - An offer lapses, if it becomes illegal after it is
made but before it is accepted.

8. By rejection

According to section 2(b) a proposal or offer is said to have been accepted when the personto whom
the proposal is made, signifies his assent to the proposal. An offer when acceptedbecomes a promise.
Offer and Acceptance in a contract are like two sides of a coin and the absence of any one will not
create any contractual relationship between these parties.

According to William Anson, “acceptance is to offer what is a lighted match is to a train of gun powder.”
An acceptance can be made by words spoken or written. It can be made by conduct also. It can be
accepted only by the person to whom it is made.

1. Acceptance must be absolute and unconditional: - Partial and conditional or qualified acceptance
will not be a valid acceptance.

2. Acceptance must be given in a prescribed mode or manner: -

3. Time of Acceptance: - Acceptance must be made within the time allowed. When no time is specified,
acceptance must be given within reasonable period of time.
4. Acceptance must be communicated: Acceptance to be legally effective must be communicated and
brought to the knowledge of the offeror
5. Acceptance may be express or implied: - When an acceptance is made by words spoken or written, it
is an express acceptance. If it is accepted by conduct, it is an implied acceptance.
6. Acceptance must be made before offer is revoked: The acceptance of an offer must be done before
the offer lapses or is withdrawn or cancelled.
7. Acceptance must be made by the offeree: -Acceptance must be made only by the person to whom
the offer is made and not by others.
8. Acceptance is not implied from silence of the party: Generally, silence on the part of offeree
regarding the offer in no case may amount to acceptance.

Communication of offer and acceptance is necessary for forming a contract. The communication of an
offer is complete as soon as it comes to the knowledge of the offeree.
Communication of acceptance is complete

1. as against the proposer, when it is put in a course of transmission to him.

2. as against the acceptor, when it comes to the knowledge of the proposer.

An Offer may be revoked at any time before the communication of its acceptance is complete as
against the proposer, but not afterwards. So an offer can be revoked at any time before the letter of
acceptance has been posted by the accepter. An Acceptance may be revoked at any time before the
communication of the acceptance is complete as against acceptor, but not afterwards.

Consideration is one of the essential elements of valid contract. According to sec. 25 of the Indian
Contract Act, an agreement made without consideration is void. Every agreement must be supported
by consideration to become a contract. In true sense consideration means “something in return” to the
promisor (quid pro quo).

The term consideration is defined in sec.2 (d) of the Indian Contract Act as,” when at the desire of the
promisor, the promisee or any other person has done or abstained from doing, or promise to do or to
abstain from doing something, such act, abstinence or promise is called a consideration for the
promise.”

1. Consideration must move at the desire of the promisor: - It is essential that promisee should perform
his part of the promise only at the desire of the promisor. The desire of the promisor may be express or
implied.
2. Consideration may move from the promisee or any other person:According to Indian law, the
consideration may proceed either from the promisee or any other person. Under the English law,
consideration must move from the promisee.
3. Consideration may be past, present or future: - If the promisor had received the consideration before
the date of the promise, it is known as past consideration. If the promisor receives consideration
simultaneously with his promise, it is known as present consideration. When the consideration on both
sides is to move at a future date, it is called future consideration. However, according to English
Mercantile law, consideration may be present or future only.

4. Consideration need not be adequate:-According to Indian contract Act, it is not necessary that the
value of promise should be equal to the value of consideration.
5. Consideration must be real and not illusory: -Consideration must have some value inthe eyes of law.
It must not be illusory, fictitious, fraudulent and uncertain.
6. Consideration must be lawful:-
Consideration is said to be unlawful if

1. If it is forbidden by law.
2. It is fraudulent
3. It involves or implies injury to the person or property of another person.
4. It is regarded by court as criminal
5. It is regarded by the court as being against the public policy.

A stranger to a contract is a person who is not a party to the Contract. Such a party neither makes nor
accepts any offer. Privity of contract states that the contract confers right and obligations on
contracting parties only. Therefore stranger to a contract cannot sue on the contract.

When consideration is furnished not by the promisee but by a third person, the promise becomes a
stranger to consideration. Under the Indian contract Act, consideration may move from the promisee or
any other persons. So in India, a consideration made by the stranger is lawful and enforceable.
Exceptions to the rule that a stranger to a contract cannot sue:
1. Beneficiary of a trust: - Trust is an arrangement whereby some property is handed over to trustee by
the owner. This property is to be managed by the trust for the benefit of the party known as beneficiary.
Here the beneficiary can sue to enforce his rights under the trust, though he is not a party to a contract.
2. Contracts through an agent: - Contracts which are entered into through an agent can be enforced by
his principal. Here the principal can file suit against third party or can be sued by third party.
3. Marriage settlement, partition or other family arrangement: - If an agreement has made for the above
purpose, in such agreement provision may be made for the benefit of a particular member. Such
person, who is beneficiary in the agreement, can maintain a suit.
4. Estoppels to acknowledgment:-When a party admits liability in a contract to third party, then if he
denies it on any ground, he will be stopped from doing so. His liability would continue towards third
party.

5. an assignee can also sue on the basis of assignment:-

Generally a promise without consideration is null and void. It is a ‘naked promise’ or‘NudumPactum’ .
But sec. 25 of the contract Act given some exceptions to this rule.
1.Agreement based upon love and affection:- Here the essentials of the agreements includes:
a. It must be expressed in writing
b. It should be registered under the law for the time being in force
c. It should be made on account of natural love and affection, and
d. The parties should stand in a near relation to each other.

2. Promise to compensate for Past voluntary services: - If a person has already voluntarily done
something for the promisor and the promisor agrees to compensate wholly or in part, the agreement is
valid even though it is without consideration.
3. Agreement to pay time barred debt:- A promise by a debtor to pay a time barred debt is enforceable
provided it is made in writing and is signed by the debtor or by his agent authorized in that behalf. An
oral promise to pay a time barred debt is unenforceable.
4. Agency: - According to sec 185 of the Indian Contract Act, no consideration is necessary to create an
agency.
5. Completed gifts: - Gift once made cannot be recovered on the ground of absence of consideration

According to section 10 of the contract Act, parties making an agreement must have the contractual
capacity. Thus every person is competent to enter into a contract if,
a. he has attained the age of majority
b. he is of sound mind, and
c. he is not disqualified by any law from contracting

A person who has not attained the age of majority is a minor. According to the IndianMajority Act 1875,
a person who has not completed his 18th year of age is considered to be a minor. But if a minor is
under the care and custody of the court and a guardian is appointed by the court for the minor, then the
minor becomes major only on the completion of the age of 21 years.

1. An agreement with a minor is void ab initio: A minor does not have the contractual capacity and
when he makes agreements, such agreements are void and cannot be enforced in the court of law.
2. Minor can be a promisee or beneficiary: - A minor cannot be stopped from getting benefits in an
agreement. If in a contract, minor is a beneficiary or suffered loss or he is a promisee, he can demand
the enforcement of agreement.
3. Ratification on attaining the majority is not allowed: A minor cannot ratify a promise entered into
during his minority, after attaining majority.
4. Minor is not bound to return the benefits received: If a minor retained any benefit under the
agreement, he is not liable for repay or compensate the same. The reason is that the original contract
is void in the beginning itself.
5. The principles of estopel is not applicable to minor: The general principle of estopel is not
applicable to a minor.
6. A minor is liable for necessaries supplied: According to sec 68, “if a person, incapable of entering
into a contract or any one whom he is legally bound too support, is supplied by another person with
necessaries suited to his condition in his life, the person who has furnished such supplies, is entitled to
be reimbursed from the property of such incapable person.
7. Minor can be an agent: A minor can act as an agent and bind his principal by his acts.
8. . He cannot be adjudged insolvent: A minor cannot adjudge insolvent as he is not competent to enter
into contracts for debts.
9. Minor- as partner: A minor cannot be a partner, but he may be admitted to the benefit of a
partnership. His liabilities are limited to the extent of his interest in the partnership.

In order to be competent to contract, a person must be of sound mind. A person who is usually of
unsound mind and 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.

1. Idiots: A person who has completely lost his mental powers and incapable of forming a rational
judgment is called an idiot. All agreements other than of necessaries of life, with idiots

are absolutely void.

2. Lunatic: A lunatic person is a person who suffers a serious mental disorder due to some mental
strain or mental shock or any highly tragic event. A lunatic is not liable for agreements entered into
during the period of his madness.
3. Drunken persons: A drunken person suffers from temporary incapacity to contract. An agreement by
a drunken person is void because during his drunkenness he cannot understand the business and its
implications.

1. Alien enemies: - A person who is not a citizen of India is called alien. No contract can be made with
an alien enemy during the subsistence of war
2. Foreign sovereigns, and ambassadors:- In the case of Ambassadors and foreign sovereigns,
according to sec 86 of the civil procedures, previous sanction of the central government is to be
obtained .
3. Insolvents: When a debtor is adjudged as insolvent his property vests in the official Receiver and
thereby he cannot enter into a contract. This disqualification is automatically removed after he is
discharged.
5. Convicts:- A convict when undergoing imprisonment is incapable of entering in to a contract. When
the period of sentence expires, the incapacity to contract disappears.
6.Corporations: A company or corporation can enter into contracts only through its agents, such as
Board of Directors, Managing Directors etc in accordance with its Memorandum of Associations. Any
contract beyond the Memorandum is not valid.
7. Married women: They are competent to enter into a contract with respect to their separate properties.
But she cannot enter into contracts with respect to their husbands’ property.

According to Sec13 of the Contract Act defined consent as, “two or more persons are said to consent
when they agree upon the same thing in the same sense.” Without free consent of the parties, an
agreement does not acquire legal sanctity and consequences.
Section 14 of this act states that, ‘Consent is said to be free when it is not caused by,
1. Coercion

2. Undue influence

3. Misrepresentation
4. Fraud
5. Mistake
In the first four cases, the contract is voidable, but in the last case, the contract is void ab initio

Coercion implied use of some kind of physical force by doing some act forbidden law to seek consent
of the other party. If the consent to an agreement is obtained by coercion, the contract is voidable at
the option of the party whose consent is so obtained.
It includes:
a. The committing of any act forbidden by the Indian Penal Code.
b. The unlawful detaining or threatening of any property of another person.
c. intention of causing any person to enter into an agreement.
d.can be applied either a party to the contract or even by a stranger.
e. the place of coercion is immaterial.

Threat to commit suicide is also one of the mode of coercion, hence it is treated voidable contract at
the option of one party.

Section 19 of the contract Act lies down that when the consent of a party to a contract is obtained by
coercion, it is voidable contract at the option of aggrieved party.”

It is an equivalent term to coercion as per English law.

B.
It is the improper use of any power possessed over the mind of the contracting party.
Section 16(1) of the Contract Act defines undue influence as follows:-

“ A contract is said to be induced by undue influence, where the relations subsisting between the
parties are such that one of the parries is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other”..

An agreement caused by undue influence shall be voidable at the option of the party whose consent
has been so obtained.

• He hold a real or apparent authority over the other. eg :-manager and worker
• He stand in a fiduciary relation to the other. eg:- – parent and child
• Person whose mental capacity is temporarily or permanently affected .eg:- Doctor and patient

• Inadequacy of consideration
• Fiduciary relationship between the parties
• Inequalities between the parties
• Pardnashin Women
• Unfair bargaining

• Husband and wife

• Creditor and debtor
• Landlord and tenant
• Principal and agent

A pardanashin woman is one who observes complete seclusion because of the custom of the
particular community to which he belongs. She is a lady under parda. She is not allowed to mix up with
outsiders. She is deemed to ignorant of outside tricks. Any person who enters into a contract with a
pardanashin women has to prove that no undue influence was exercised in obtaining her consent. He
has to satisfy the court that terms and conditions of the contract have been explained to her and they
were understood properly by the women.

1. Coercion implies the use of physical force or threat to cause consent. While undue influences
involve use of moral or mental pressure to cause consent.
2. Coercion involves a criminal act while there is no criminal act in undue influence.
3. in coercion, the consent of aggrieved party is given under threat wherein undue influence the
consent of aggrieved party is obtained by misusing the dominant position.
4. In case of coercion, the threat may come from a third party who is a stranger to the contract. While
on the other hand, the undue influence must be exercised by or against a person who is a party to the
contract
When a wrong representation is made by a party with the intention to deceive the other party or to
cause him to enter in to a contract, it is said to be fraud.

• The fraudulent act must have been committed by a party to the contract
• There must be a false representation
• There must be active concealment of fact
• Promise made without intention of performing it
• Made with an intention to deceive the other party.
• Representation must relate to a fact.
• The other party must have been deceived
• Must have suffered some loss

If the consent to an agreement is caused by fraud, the contract is voidable at the option of the party,
whose consent was so caused. In case of fraud, the aggrieved party has the following remedies:-
a. He can cancel the contract within a reasonable time.
b. He can sue for damage
c. He can insist on specific performance of the contract on the condition that he shall be put in position
in which he would have been if the representation made had been true.

Mere silence or non-disclosure of facts normally does not constitute fraud unless party keeping silence
is under legal obligation to speak or his silence is equivalent to speech.But this rule has certain
exceptions.
1. Contract of uberrimaefidei(at most good faith) – eg marriage contract
2. Silence maintained by the party is equivalent to speech

3. Fiduciary Relationship

It is a misstatement of material facts. The party making untrue statement believes that the statement
is true, but in reality statement turns to be incorrect. It also includes non-disclosure of material facts
and facts without any intention to deceive the other party.

When consent of the party is caused by the misrepresentation made by another party, the contract is
voidable at the option of the aggrieved party whose consent was caused by misrepresentation. He has
the right to May avoid or rescind the contract

1. Fraud implies an intention to deceive and in misrepresentation there is intention to deceive.

2. In fraud person making the wrong statement does not believes it to be true wherein
misrepresentation, the person making wrong statement it to be true.
3. In the case of fraud aggrieved party can cancel the contract and also he can claim damages while in
the case of misrepresentation, the aggrieve party can cancel the contract but cannot sue.
4. In case fraud the contract is voidable at the option of aggrieved party even though it discovered the
truth, but in misrepresentation aggrieve party cannot avoid the contract if discovered the truth.
5. In case of fraud the person making the representation have full knowledge that it is not true and in
misrepresentation, the wrong statement is made without the knowledge of the fact.

A mistake means that parties intending to do nothing have by intentional error done something else. If
the agreement is made under a mistake, it means that there is no consent and when theconsent is
nullified by such mistake, and then the agreement has no legal effect.

• Mistake of law
• Mistake of fact
Mistake of Law:- Mistake of law may be of two types:
• 1. Mistake of Indian Law
2. Mistake of foreign law
Mistake of Fact:-Mistake relating to terms and conditions or any facts essential to the agreement is
known as mistake of facts.
Mistake of facts may be
a. Bilateral mistake:- A bilateral mistake is one where both the parties are under a mistake. Section 20
of the Act lays down that, “where both the parties to an agreement are under a mistake as to a matter
of fact essential to the agreement, the agreement is void”

• Mistake must be mutual

• Mistake must be of fact and not law
• Fact which must be essential to the agreement

• Mistake as to subject matter

● Regarding the existence of subject matter

● Regarding the identity of subject matter
● Regarding the title of the subject matter
● Regarding the quantity of the subject matter
● Regarding the quality of subject matter
● Regarding the price of subject matter
● Mistake as to possibility of performance
● Physical impossibility
● Legal impossibility

b. Unilateral mistake: - In this case only one party is under a mistake. In other words, if there is a
mistake on the part of one party alone and the other party does not know the mistake, then it is called
unilateral mistake.
Under the following circumstances an agreement would be unlawful:
1. It is forbidden by law:-If the object or consideration of an agreement is forbidden by law, the
agreement is void.
2. It defeats the provisions of any other law:-Where the enforcement of a particular is of such a nature
that it would defeat the provisions of any statutory law which is in force, the agreement is void.
4. It is fraudulent: - Fraud is punishable under the provisions of the law. Thus an agreement made with
an object of defrauding or deceiving another will be void. It involves an injury to a person or property of
other.
5. It is Immoral: - If the object of an agreement is considered as immoral in the opinion of the court,
such agreement will be void on account of unlawful object.
6. It is against public policy: - Any agreement which goes against public policy and adversely affect
public welfare public decency and public interest will be void. The court has declared the following
agreements oppose to public policy.
• Trading with alien enemy
• agreement to commit a crime
• Interfering with course of justice
• . Marriage brokerage agreements
• Agreement for stifling prosecution
• Agreement of champerty and maintenance
• Agreement for sale of public offices, titles and appointments

Agreement in restraint of parental rightsAgreement restraining personal liberty

• Agreement restraining trade

• Agreement to defraud the creditors

• Agreement to create monopolies
• Agreement not to bid
• Agreement to influence election

"An agreement not enforceable by law is said to be void."

A void agreement does not create any legal rights and obligations. The agreement is void ab initio.

1. Section 11: Agreements by incompetent parties.

2. Section 20: Agreements made under a mutual mistake of fact.

3. Section 23: Agreements with unlawful object and consideration.

4. Section 24: is Agreements, the consideration and object of which unlawful in past.
5. Section 25: Agreements made without consideration.

6. Section 26: Agreements in restraint of marriage.

7. Section 27: Agreement in restraint of trade.

8. Section 28: Agreements in restraint of legal proceedings.

9. Section 29: Agreements, the meaning of which is uncertain.

10. Section 30: Agreements by way of wager.

11. Section 36: Agreements contingent on impossible events.

12. Section 56: Agreements to do impossible acts.

13. Section 57:Reciprocal promises to do certain things which are legal and certain other things which
are illegal.

All agreements in restraint of marriage (except those of minors) are void. A major person has freedom
of choice in marriage. The law considers marriage and married status the right of every individual.

Every person has freedom to legally practise any trade, commerce or profession. It is the fundamental
right of every person. An agreement in restraint of trade restrains a person following a profession of his
choice in a lawful manner. Such an agreement is void. Section 27 of the Indian Contract Act says

"Every agreement by which anyone is restrained from exercising a lawful profession, trade or business
of any kind, is to that extent void."

The restraint may be complete or in part. When restraint curbs the freedom of a person in carrying on a
business within a particular locality, time or a business of a particular nature, it is partial. All restraints,
complete or partial, are void.

1. Exception Under Indian Contract Act: Exception under Indian Contract Act is applicable in the sale of
business along with its goodwill. Section 27 of the Act says that when the goodwill of a business is
sold, the seller may be restrained from carrying on a similar business within specified local limits. But
the restraint should be reasonable and applicable within specified local limits and for a specified
period.

2. Exception under Partnership Act: Section 11 (2) of the Partnership Act says that partners may enter
into an agreement that a partner will Act says that parts may other than that of the firm, the he is
partner. It means that during the existence of the firm, the partners should carry on only the joint
business of the firm.

(a) Section 36 (2) of the Indian Partnership Act restrains an outgoing member from carrying on a
similar business. So an agreement restraining an outgoing partner from doing a business similar to the
business of the firm is valid. Only that the restraint should be reasonable, specifying the area and
period of time in which the restraint would be applicable.

(b) Restraint in anticipation of dissolution: Section 54 of the Indian Partnership Act says that in
dissolution or in anticipation of dissolution of a partnership firm, the partners can enter into an
agreement restraining each other from carrying on a business similar to one conducted by the firm. As
usual, the restraint must be reasonable and specify the limits in place and time.

Section 55 (3) of the Indian Partnership Act provides that when the goodwill of a firm is sold, the
partners can be restrained from doing similar business within specified limits of time and place. Of
course, the restraint must be reasonable and must make specific limits of time and place.

- Service agreements with employees

Restraints on employees: Agreement executed with an employee may contain provisions which prevent
employees from working elsewhere during the period of the agreement.

-Judicial Exceptions

(1) In order to maintain price level and avoid misunderselling, different firms may enter into an
agreement. It is legal. Similarly manufacturers can make agreements not to sell their products below a
commonly accepted price to pool profits and to divide the business and profits in a certain proportion.
Such agreements are valid.

(2) While appointing sole selling agents or distributors, the agent makes an agreement with the
company to deal only in the products of that company. The company may also agree with the
agent/sole trader to sell the company's products to no one else in the specified area. Such an
agreement is perfectly valid.

Every person has a right to go to court to enforce legal rights. An agreement that restrains the justice
is void as it is opposed to public policy. But a few exceptions are there:

(1) Agreement to refer future disputes to arbitration is perfectly valid.

(2) Agreement to refer a present dispute to arbitration is equally valid.

(3) An agreement restricting the right of either party to sue in a particular court is valid.

Agreements made in such a way that the terms used therein are uncertain and vague are void. They
have no legal effect.

According to Anson,” wager means promise to give money or money’s worth upon the determination of
an uncertain event in which the parties have no material interest and with mutual chances of gain or
loss.” Thus in simple words, Wagering agreement is one in which money is to be paid by one to another
party or vice versa on the happening or non-happening of future uncertain event.

1. Mutual gain or losses: - There are two parties in wagering agreement. One of the parties will win and
another party will lose.

2. Uncertain event: -The performance of wagering agreement depends on happening or non-happening

of a future uncertain event.
3. Interest of the parties: - The parties must not have any other interest in the happening of the event
except the sum of money which either of them will win or lose.
4. Control over the event:-Neither of the parties should have any control over the event.
5. Payment of money: - The two persons agree that dependent on the determination of that.

1. Wagering agreements are void. Therefore the winner cannot recover amount which other party had
to pay.
2. Agreement by way of wager is just void and unenforceable. The collateral transactions based on
such agreement are not affected and thus are valid.

1. Speculative transactions
2. Commercial transaction
3. Horse racing
4. Lotteries
5. Prize competitions
6. Athletic competition

Insurance contract is a contract whereby the insurance company in consideration of payment of

premium from the insured promises to compensate his losses arising out of insured cause. These
contracts are valid.

1. Contract of insurance is a contract of indemnity while a wagering contract is not a contract of

indemnity.
2. In insurance contract there is insurable interest, but in wagering contract there is no insurable
interest.
3. A wager will arise only if one party losses and another gains while in insurance contract no
winning or losing.
4. A contract of insurance is legal and enforceable while a wagering contract is void. In insurance
contract the amount of premium is determined scientific way, but in a wagering agreement, to
determine amount of loss or gain has no basis at all.

Contract is mutual exchange of promise between the parties. A contract may be absolute or contingent.
An absolute contract is one in which the promisor must perform the contract in all events.

A contract is said to be contingent when its performance depends upon the happening or
non-happening of a future event.

According to section 31 of the Indian Contract Act, “a contingent contract is a contract to do or not to
do something, if some event collateral to such contract does or does not happen.” Contingent contract
are called conditional contracts in English law. Contract of indemnity and guarantee is a contingent
contract.

1. future event.
2. uncertain event
3. Collateral event

1. Contingency on Happening of an event:

2. Contingency on non-happening of an event:
3. Contingency on the happening of an event within stipulated time:
4. Contingency on non-happening of an event within the stipulated time:
5. Contingency on the non-happening of impossible event

1. There are mutual promises in a wagering agreement. While it is not necessary in a contingent
contract.
2. Wagering agreements are void. But contingent contracts are valid subject to conditions.

3.In wagering agreements parties do not have any interest on the happening or non- happening of that
event. But in contingent contract, one or both the parties may have some interest on the event.

4. In wagering agreement future event is determining factor, but in contingent contract future event is
collateral to a contract.
5. a contingent contract is not a wagering nature, but a wagering agreement is essentially of a
contingent nature.
The obligations which are created and imposed by law in the absence of any contract to that effect are
called quasi contracts. Quasi contracts are also called constructive contracts.

1. Supply of necessaries to the person having no contractual capacity or to his dependent:-

2. Reimbursement of payment made by a person who is interested but which anotherperson is legally
bound to pay

3. Obligation to pay for non- gratuitous act or service:-

4. Rights and duties of the finder of lost goods:
5. Liability of persons to whom money is paid or things delivered by mistake or under coercion.

According to the first part of Section 37 of the Indian Contract Act, "The parties to a contract must
either perform or offer to perform their respective promises."

(a) actual performance or

(b) offer of performance of the promise or attempted performance or tender

(a) Actual performance refers to the fulfilment of the obligation. When the party has done what he had
undertaken to do, and nothing remains to be done, we say the promise has been performed. So the
party has no more liability under the contract.

(b) An offer to perform one's obligation under a contract is called tender of perfornance.When the
promiser makes a valid tender of performance, it is the duty of the promiser to accept the
performance.If the promisee does not do so, the promiser is thereby discharged from his liability.

1. The tender must be unconditional:-A tender is unconditional when it is in accordance with the terms
of the contract. If the tender is not in accordance with the contract, it becomes invalid.

2. Tender has to be made at the proper time and place :-According to Section 38 (2) of the Indian
Contract Act, the time and place of performance of the contract must be fixed by the parties in the
contract itself. And the tender of performance must be made at the time and place mentioned in the
contract.

3. The tender must provide reasonable opportunity:- To ascertain that the party making the tender is
able and willing to perform the contract, and also provide reasonable opportunity to inspect the goods,
he should be given an option to inspect the goods and verify whether they are the same as agreed.
4. The tender must be of the whole obligation and not in part And a tender by instalment is not valid
unless the contract contains a provision for instalments.

5. The tender must be made to the proper person:-A tender must be made to the proper person, i.e., the
promisee or his duly authorised agent. A tender of performance made to a stranger or third party is not
valid.

6. Tender must be made in the proper form;- Tender of money must be made in the legal tender money
and not in any foreign currency. Payment by cheque is valid only if the person to whom it is made is
ready and willing to accept the cheque.

7. The person who makes a tender should be able and willing to perform his obligation:-A person who
has no possession or control of goods he promises to deliver is not considered able and willing.

8. The tender may be made to any one of the joint promisees:-If there are more than one promisee, the
promiser can make the tender to any one of them.

1. Tender of goods

In case of tender of goods, all essentials of a valid tender must be obliged. Ample opportunity also
must be given for inspection of the goods.

2. Tender of money

In the case of tender of money, it must be legal tender money. The cash must be in precise form.
Payment of money by cheque or any other document is not valid tender.

(a) The promiser: A contract is generally performed by the promiser, his legal representatives or any
other competent person employed by the promiser. But in cases where the parties of the contract
intended the promiser himself to perform the contract, the promiser is the apt person to perform.

(b) The legal representatives: Contracts having no personal skill or expertise, the legal representatives
can perform the contract if the promiser dies before the performance. In fact the legal representatives
have the obligation to perform the contract.

(c) The agent: The agent appointed by the promiser can perform the contract provided the contract
does not involve any personal skill or consideration.

(d)Third person: Though generally contract is performed by the promiser, his legal representative or an
agent employed by the promiser can perform the contract if the promisee accepts it. But once the
promisee accepts the performance from the third person, he cannot force the promiser to perform the
contract again. Here the contract comes to an end.

When two or more persons make a joint promise with one or more persons such promises are called
joint promises.

(1) The joint promisers or their legal representatives should jointly perform the promise. If anyone of
the joint promisers dies, his legal representatives should make the payment along with the surviving
joint promisers. If all the joint promisers die, the legal representatives of allthe joint promisers should
make the payment.

(2) The promisee also can compel any one of the joint promisers to perform the promise. In the case of
two or more people making a joint promise, the promisee can face any one of or all of the promisers to
perform the promise. The joint promisers are jointly and severally bound to perform the promise.

1. When no time and no application is specified in the agreement, the general understanding is that the
performance should take place within reasonable time'. 'Reasonable time' depends on the nature of the
business. special circumstances, if any, and the intention of the parties at the time of promise.

2. When the day is specified in the agreement but no mention is made about application, the promise
can be performed at any time during the usual business hours of the day mentioned in the agreement.

3. When time of performance is specified and the promiser has to ask for performance, the demand for
performance must be made at the proper time and place within the usual hours of business.

4. When the place of performance is not specified in the agreement, the promiser has to perform the
promise. The promisee need not ask for performance. The promiser should ask the promisee to fix a
reasonable place for performance. Then only should the promiser deliver the goods at the place fixed
by the promisee.

5. When the manner and time of performance is fixed by the promisee, the promiser should perform the
promise in the manner and at the time specified by the promisee.

In some contracts time is the essence of the contract. The parties to the contract specify the time for
performance. In such contracts both parties should strictly follow the time fixed for the performance.
When time is the essence of contract, failure to perform within the specified time renders the contract
voidable at the option of the promisee. In these contracts the time and manner of performance are
prescribed by the promisee.
Section 2 (f) of the Indian Contract Act says "Promises which form the consideration or part of
consideration for each other are called reciprocal promises."

There are three types of reciprocal promises:

1. Mutual and concurrent: These promises are to be performed between the two parties simultaneously,
i.e., at the same time.

2. Conditional and dependent: In conditional and dependent contracts the performance of the promise
of the first party depends on the performance of the promise of the second party.

3. Mutual and independent: In mutual and independent promises, each party performs his promise
independently without waiting for the other party to perform.

Discharge of contract means terminations of the contractual relationship between the parties. On the
termination of such relationship the parties are released from their obligations in the contract.

A contract may be discharged in any one of the following ways.

A. Discharge of contract by performance: -

This is the most popular and usual way of discharging contracts. When the parties to a contract fulfill
their obligations arising under the contract within the time, and in the manner prescribed, it is known as
discharge of performance.
B. Discharge of contract by mutual agreement:

1. By Novation (Substitution of a new contract):-Under the method of novation, existing contract is

replaced by new one either between same parties or between new parties. It discharges an existing
contract and brings new contract into existence.
2. By alteration:-Alteration of contract may take place when one or more of the terms of the contract
altered by the mutual consent of the parties to the contract.
3. By Rescission:-Rescission means cancellation of the contract. If the parties to a contract agree to
rescind it, the original contract need not be performed. Rescission may either be total or partial.
• By mutual consent
• By aggrieve party
• By failure to perform

4. By remission: - Remission means acceptance of lesser performance than what was actually due
under the contract.
5. By waiver: - When both parties, by mutual consent, agree to abandon their respective rights, the
contract need not be performed and the same is discharged. It is called waiver.
6. Merger – Merging of two contracts into one is merger.
C. Discharge by lapse of time: -
If the contract is not performed and the promisee fails to take any action within the period of limitation,
then the contract is terminated or discharged by lapse of time. D. Discharge by
D.Operation of Law:-

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

a. By Death:-Where performance of a contract is required to be made in person and the personal skill
and qualification of the promisor are important, the death of the promisor discharges the contract.
b. By insolvency: When a person is adjudged insolvent, he is discharged from all the liabilities incurred
before the adjudication.
c.By Merger of rights: This is a condition by which, an inferior right contract merges into a superior right
contract. In this case, the inferior right contract stand discharged automatically.
E. Discharge by Impossibility of Performance: -

The impossibility of performance of a contract may be initial impossibility and subsequent

impossibility.
1. Initial impossibility
When both the contracting parties are aware of impossibility of performance of the contract even at
the time of formation of the contract itself, then the agreement becomes void ab initio.
• Known impossibility
• Unknown impossibility
2.Supervening impossibility subsequent impossibility/Doctrine of frustration:

In certain cases, the contract at the time of formation is capable of being performed. Subsequently
after the formation, its performance becomes impossible or illegal. This kind of impossibility is known
as Supervening impossibility and such contract becomes void.A contract is discharged due to
supervening impossibility under the following situations:-
a. Destruction of subject matter: - If the subject matter of the contract is destroyed or perished
subsequent to the formation of the contract without the fault of either party to the contract, the
contract need not be performed and it is discharged.
b. Death or personal incapacity of the promisor:-A promise requiring personal skill and ability may
become physically incapable of performance by reasons of the death or incapacity of the same person.
Such impossibility discharges the promisor from liability.
c. Change of Law: - Change of law, after the formation of a contract, if renders performance of contract
unlawful; such contract is discharged on the ground of supervening impossibility.
d. . Declaration of war: When a war is declared after the formation of a contract, all pending contracts
with the residents of enemy country remains suspended.

1. Difficulty of performance: - Difficulty is no excuse for performance

2. Commercial impossibility: - When the performance of a promise becomes costlier, non -profitable
and more risky, such contract will not be discharged.
3. Strikes, lock-outs,:- A contract is not discharged automatically on the ground of supervening
impossibility due to strike.
4. Impossibility due to failure of third party: - Failure of third party or his inability will not be considered
sufficient ground for discharging a contract.
5. Partial impossibility: When a contract is entered into for several objectives, failure of one of the
objects does not terminate the contract.
6. Self- induced impossibility
F. Discharge by Breach of Contract: -

A contract can be discharged by not performing it. Breach of contract means refusal of performance
on the part of the parties.

Breach of contract may of two types; actual breach and anticipatory breach. Actual breach of contract
takes place when the promisor fails to perform his obligation or refuses to do so on the due date of
performance. In anticipatory breach of contract, the promisor either refuses to perform or makes
himself unable to perform a promise before due date of performance.
The various remedies available to an injured are:
A. Rescission of the Contract: - Where one of the parties to a contract commits breach, the other party
treats the contract as rescind or cancelled and refuses the further performance.
B. Suit for damages: - When a contract is broken, the injured party can claim damages from the other
party. There are different types of damages.
a. Ordinary/ compensatory damages –under this, the actual damage can be identified clearly
b. Special damages: - These damages are those which arise from the breach of contract under special
circumstances. Under this, actual loss cannot be identified
c. Exemplary damages or vindictive damages: - These damages are awarded with a view to punish the
defaulting party who injured the feelings of the others.
d. Nominal damages: Nominal damages are awarded in cases where the injured party is able to prove
a breach of contract, but he has not suffered any real and substantial loss.
C. Suit for Specific Performance: In certain cases, damages is not an adequate remedy for the breach
of the contract. In such circumstances, the court directs the defaulting party, to carry out the
performance of the contract specifically. This is known as specific performance. court may be granted
specific performance in the following cases:

a. Where monetary compensation is not an adequate remedy for breach of contract.

b. Where there is no standard for ascertaining the actual damage, caused by non-performance of
promise by the party.
c. When it is probable that monetary consideration on non-performance of the act cannot be obtained.

D. Suit for Injunction: - In a contract if the party has made a promise for not doing something, and the
party makes a breach of contract by doing that thing. To prevent such party from doing that act an
order of injunction may be claimed by an aggrieved party. Injunction is a preventive relief and is
generally issued in cases where the compensation in terms of money is not an adequate relief.
E. Suit upon quantum meruit:-The quantum meruit literally means ‘as much as earned’ or ‘in proportion
to work done’. That is when a person had done some work under a contract and the other party
repudiated the contract, then the party who has performed the work can claim remuneration for the
work has already done.

Claim for quantum meruit arises in the following cases:

a. When a contract is found to be void: When a contract is discovered to be unenforceable for some
technical reasons, any person who has received any advantage under such contract is bound to restore
it.
b. When something is done without any intention to do so gratuitously: -when a person does some
work for or delivers something to another person with the intention of receiving payment for the same
then such other person is bound to make payment if he accepts such services or goods or enjoys their
benefit.
c. When a contract is divisible: When a contract is divisible and the party no in default has enjoyed the
benefit of the part performance, the party in default may sue on quantum meruit.
d. When one party abandons or refuses to perform the contract:- When a party of a contract performs a
part of the contract, abandons it without completing or refuses to perform the remaining part, then, the
other party can claim, compensation for the work done on the basis of quantum meruit.
e. When an indivisible contract is performed badly: -When an indivisible contract for lump sum has
been completely performed but badly, the person performing it is entitled to claim the whole amount;
but the other party can make a deduction for a bad work.