OFFER

PROPOSAL/OFFER

Section 2 (a) defines the proposal /offer as

 When one person signifies to another

 his willingness to do or
 to abstain from doing anything
 . with a view to obtain the assent of other

Such act or abstinence is said to make a proposal.

#Signifies-to speak

#Abstain to stop

#assent -approval

#abstinence-practice of stopping from indulging in something

Analysis of definition:

For a valid offer the party must express the willingness to do or not to do something. However mere
expression of willingness does not constitute an offer.

For instance where A tells B that he desires to marry by the end of 2013 it does not constitute an offer.
But to constitute a valid offer it must be made to obtain the assent (acceptance) of the other. Thus in the
above example,' A' further adds, "will you marry me" it will be an offer as this statement is made with a
view to obtain the acceptance of B.

Where A tells B "Not to sell your house to C as I want to buy it now in this case Mr. A is abstaining
Mr. B from selling the house to C with a view to get the acceptance of B so that Mr. B may sell his house
to A".

Thus the offer may be (a) by doing an act (b) by abstaining from doing an act.

Doing an act may be by words or by conduct.

Examples:-

a). A proposes by; letter to sell a house to B for INR 50 lakhs. (BY WORDS)

b). The bus standing at the bus stand with the gates open is an offer by conduct that anyone who wants to
travel can sit and enjoy the journey. (BY CONDUCT)

Types of offer/Classification of offer:

General offer - it is an offer made to public in general and any one can accept it. Indian contract act
points out that the performance of the conditions of a proposal is an acceptance of the proposal. Please
remember that anyone can perform the conditions of proposal and so anyone can accept it.

For example, I offer to sell my car for Rs.50,000/ and any one who wants to buy my Car shall give me
Rs.50,000 and take the car.

Specific offer: Specific offer is made to a specific person & can be accepted by identified person only.

For example I offer to sell my car for Rs.50,000/ to a school teacher. Here any one cannot buy my car only
a school teacher can buy my car.

Cross offers: when two parties exchange identical offers but in ignorance of each other's offer such offers
are called cross offers.
For instance: Mr. A mail to Mr. B for selling his car at INR 1 lakhs. At the same time Mr. B also mailed to Mr.
A to purchase the car of Mr. A for the same amount. Neither Mr. B received the mail of Mr. A nor did Mr. B
receive the mail of Mr. A before sending their respective letters (Known as ignorance). Now this will be
considered as cross offer. The court will not construe one as offer and the other offer as its acceptance.

Counter offer: when the person to whom the offer is made makes the qualified (conditional) acceptance
of the offer he is said to have made a counter offer. The counter offer so made in rejection of the original
offer.

For instance: Mr. A offers to buy the car of Mr. B at INR 1 lakhs. However Mr. B said that he will sell it at
INR 1.5 lakhs. Now in this case the statement made by B will be considered as counter offer i.e. the
rejection of original offer of Mr. A.

Standing, open and continuing offer: An offer which is allowed to remain open for acceptance over a
period of time is known as a standing offer, open offer or continuing offer. Tender for supply of goods is a
kind of standing offer.

Rules as to offer:

a) The offer must be capable of creating legal relation - A social invitation even if it is accepted does not
create legal relations. Offer should be such when it is accepted should result in a contract which is binding
on both the parties.

For instance: Mr. Ram invited Mr. Shyam for celebrating the birthday of Mr. Ram. Now this cannot be
considered as offer by Mr. Ram as it is only a social invitation. Even if Mr. Shyam accepted the invitation it
is not binding upon Mr. Ram.

b) The offer must be certain, definite and not vague-if the terms of an offer are vague or indefinite and
the person to whom it is made does not know what he has to accept, and then this cannot be termed as
offer.

For Instance: A Offers to sell B 1000 tons of oil. There is nothing to show what kind of oil is intended. The
offer is not capable of being accepted for reason of uncertainty.

But if the offer contains a term which can make the offer clear then offer shall not be deemed to be
vague.

For example A is a dealer in Coconut oil and he offers to sell 1000 tons of oil. It shall constitute a valid
offer since the nature of A's trade provides an indication about the oil he is intending to sell.

c) The offer may be expressed or implied: Expressed offer can be of two types: a) oral offer (by words of
mouth) b) written offer (in writing). Implied offer means offer by doing an act. The bus standing at the bus
stand with the gates open is an offer by conduct that anyone who wants to travel can sit and enjoy the
journey. (BY CONDUCT)

d) The offer must be distinguished from an invitation to offer.

• In order to ascertain whether a particular statement amounts to an offer or an invitation to offer the
test would be intention with such statement is made.

• The person who makes the statement intends to be bound by it as soon as it is accepted by the other
than it is offer.

• Where the person intends some further acts to be done before he becomes bound by it then it is an
invitation to offer.

• For instances: a) Prospectus issued by the college is an invitation to offer as the college wants that
student should first fill the details contained therein and deposit the same (known as offer by student),
thereafter college will take the decision whether the student will get the admission or not.

b) Goods displayed in the showroom with price tag attached is an invitation to offer not offer as the
shopkeeper wants from the customer to approach him and to give him an offer that he wants to buy it.
e) The offer should not contain a term the non compliances of which will amount to acceptance.

If the offer contains a condition that if an acceptance is not communicated by a certain time offer shall be
deemed to be accepting, non communication of acceptance by a particular time cannot be taken as
acceptance.

For example I asked my friend that I want to sell my house to you for 1 crore and if you did not reply
within one hour , it will be deemed that you have accepted my proposal.

f) Special terms of an offer shall be brought into the notice of other party: -

. Where special terms are included in the offer they must be dully brought into the notice of other partly
at the time when the proposal is made. If this is not done and the contract is entered into, the other
partly will not be bound by specific term.

These special terms should be so presented that a reasonable man may become aware of them before he
enters into a contract.

Certain condition is attached to transaction like purchase of a ticket for a journey or deposit of luggage in
a clock room. Where ever on the face of the ticket the words for condition "see back" are printed, then
the person whom the ticket issued is presumed to be aware of them and he is bound by them. The fact
that he did not read them or could not read the does not alter the position. Con

For instance: A deposited the bag in waiting room of railway station. On the face of the ticket issued to
him was written "SEE BACK" one of the conditions limited the liability of the company for loss up to 10 kg.
Bag was lost A claimed 24 kg as its value. It was held A was bound by the conditions written on the back of
the ticket. He hasn't read them doesn't entitle him for 24 kg. But if "SEE BACK" was not written he can
claim 24 kg.

ACCEPTANCE
(A) Meaning - as per section 2 (b) the person to whom the offer is made signifies his assent, the proposal
is said to be accepted. A proposal when accepted becomes a promise as per [section 2 (b)].

For example I offer to sell my car to my friend for Rs.50,000/ and he said OK means he accepted my offer .

The rules regarding acceptance are as follows: -

a) Acceptance must be absolute and unqualified - As per section 7 an acceptance to be valid should be
absolute and unqualified. One should accept what is offered to him. Qualified acceptance is no
acceptance rather it is counter offer.

For instance-A offer to sell cow to B who replies that he would buy it only if he gave It only if it. This is not
acceptance because it is qualified. the calf along with

b) Acceptance must be to an offer: An acceptance should be response to an offer. One cannot accept d be
resp what is not offered to him X cannot accept to buy Y's car without the offer being made by Y. In the
case of Lalman Shukla vs. Gauri Duitt:

• Master sent his servant to trace his missing nephew.

• The Master did not hear anything about the missing nephew for some days.

• Ultimately he announced a reward for anyone who may find his missing nephew.

• The servant without the knowledge of this announcement found out the boy.

• Subsequently on becoming aware of the reward he claimed the reward. Servant was not entitled to it.

* First of all there should be offer only then it can be accepted

*S, when traced A's son

→ He was unaware about offer.

→ & if he was not aware about offer, how he can accept.

c) Acceptance must be made in the mode prescribed - Normally acceptance must be in the usual and
reasonable manner but if the mode of acceptance is prescribed in the proposal it shall be accepted in the
manner prescribed.

Let us suppose I made an offer to sell my car for Rs.50,000 and any one interested can E mail me, only
those who sent E mail me , theirs acceptance is valid.

d) Acceptance must be given within the time specified: Acceptance must be given within the time
specified but, if no time is specified - acceptance must be given within reasonable time or before the offer
lapses. What is reasonable time? It depends on the facts and circumstances of each case.

Let us suppose I made an offer to sell my car for Rs.50,000 within 7 Days, it means the offer is valid for 7
days only.

And if no time period is mentioned it should be within reasonable time.

e) Mere silence is no acceptance-the offer cannot be made as to constitute the silence as the acceptance.
Case law: Felt house Vs. Bindley

• A wrote to B offered to purchase his horse at 35 pounds.

• He stated further that if I hear nothing I shall consider the horse as mine.
• No reply was ever sent by B. on the other hand B instructed his auctioneer “C” not to sell the
horse as it was already sold to A.
• By mistake auctioneer “C” sold the horse to “D” against the direction of ‘B”
• A proceeded against C claiming that horse is mine. But action of A failed.
• In this case it is not a valid offer as we have discussed earlier that for a valid offer it should not
contain a term the non compliance of which amounts to acceptance.
• Here A considered the mere silence as acceptance.

f) The acceptance must be communicated: As per the definition of acceptance "the person to whom the
offer is made signifies his acceptance" Kindly note the word "to signify". Thus the acceptance just be
communicated. The mode of communication is not specified. It may be any means which has the effect of
communication. In case of Broaden V Metropolitan Railways-

In this case A agreed to supply coal to the railway company. It made an offer to the railways.

The manner approved the draft and put it in the drawer of his table.

Draft so approved remained in the drawer without the approval being signified and communicated. In this
case there is no valid contract. Because there is no acceptance.

g) Acceptance by conduct-

• . The assent means that acceptance has been signified either in writing or by word of mouth or by
performance of some act. A person performs the act intended by the proposer; the performance
of the act constitutes an acceptance.
• For example, when a trade man receives an order from a customer. The trade man executes the
order by sending the goods. The customer order for goods is the offer which has been accepted
by the trade man by sending the goods. It is a case of acceptance by conduct.
• Section 8 provides that the performance of the condition of the offer is an acceptance.

h) Acceptance should be made who has the authority to accept. Offer can be accepted by the
person who has the authority to accept. The case on the point is Power v lee
In this case A applied for the post of headmaster in school.
• Appointing authority selected him.
• One of the members of appointing committee who had no authority to communicate on
behalf of the appointing authority informed A about his appointment.
• The appointing authority subsequently cancelled the appointment.
• It was held acceptance by unauthorized person is no acceptance. Therefore school is not
liable to appoint or compensate A.

In this case A applied for the post of headmaster in school. Appointing authority selected
him.

Mr. A applied for the post of Headmaster in a school

⇒ But, his appointment is not communicated to him. one of the person (who was friend of Mr. A)
→ appointing authority Confirmed the appointment of Mr.A

from appointing Committee informed unofficially to Mr. A about his appointment

Mr. A's appointment is not valid." Acceptance should be communicated by the person who has
the authority to Communicate

COMMUNICATION OF OFFER AND ACCEPTANCE

When the contracting parties are face to face there is no problem of communication. There is
instant and simultaneous communication of offer and acceptance. In such a case the question of
revocation does not arise. The offer and its acceptance are made instantly. Contract is made
instantly. Therefore there is no offer left which can be revoked. There is no acceptance which can
be revoked. The story is different when the contracting parties are at a distance of each other.
They utilize the services of the post office or telephone. In such cases it is relevant to know the
precise time when the offer is made or when the acceptance is made or when the offer &
acceptance are complete.
Communication of acceptance-
As per section 4 the communication of acceptance is complete on two different dates on one date
as against the proposer and on another date as against the acceptor.
When a proposal is accepted by a letter sent by the post the communication of acceptance will be
completed against the proposer when the letter of acceptance is posted and against the acceptor
when the letter reaches the proposer
EG-(x) as against the proposer: assuming the acceptance is put into the course of transmission-on
15 march now the communication of acceptance is complete against the proposer on
15 march. as against the accepter: when the acceptance comes to the knowledge of the proposer.
Suppose in this case the proposer receives the letter of acceptance of 12 march. The
communication of acceptance is complete against the acceptor on 17 March
.

COMPLETITION COMMUNICATION OF OFFER

COMPLETITION COMMUNICATION OF ACCEPTENCE

REVOCATION OF OFFER
Revocation of offer and acceptance
Under section 4 the communication of a revocation is nis complete:
As against the person who makes it, when it is put into a course of transmission to the person to
whom it is made so as to be out of the power of the person who makes it.
As against the person to whom it is made, when it comes to his knowledge
For example: a) A revokes the offer by letter and posts it on 1 April which reaches Mr. B on 10
April. Now for Mr. A communication of revocation of offer is completed on 1 April (the
communication of revocation is completed as against the person who makes it i.e. Mr. A, when it
is put into a course of transmission) and for Mr.B. communication of revocation of offer is
completed on 10th April (As against the person to whom it is made i.e. Mr. B, when it comes to his
knowledge).
(b) X revokes the acceptance by letter and posts it on 1 April which reaches Mr. Y on 10th April.
Now for Mr. X communication of revocation of acceptance is completed Ion 1 April (the
communication of revocation is completed as against the person who makes it i.e. Mr. X, when it
is put into a course of transmission) and for Mr. Y communication of revocation of acceptance is
completed on 10 April (As against the person to whom it is made Le. Mr. Y, when it comes to his
knowledge).
 REVOCATION OF ACCEPTANCE

Under section 5 a proposal may be revoked at any time, before the communication of its
acceptance is complete as against the proposer. An acceptance may be revoked at any time before
the communication of acceptance is complete as against the acceptor.
 Lapse of the offer-
As per section 6 offer can be lapsed as indicated below:-
By notice of revocation: The offer may revoke the offer before acceptance. He may send the
notice of revocation to the other party.
By the lapse of the time specified for the acceptance: Offer is not accepted within that time
specified. However, if no time is specified then by the lapse of the reasonable time. What is
reasonable time depends on the facts and circumstances of the case
By the failure of the acceptor to fulfil the condition precedent to the acceptance: Assuming that
offeror while making an offer puts the condition that for the offer to be accepted, an amount of
advance should be sent. The sending of the amount of advance is a condition precedent. If it is
not complied then offer is deemed to have lapsed.
By the death or insanity of the proposer: Death or insanity of the proposer comes to the notice
of the acceptor before he accepts the offer. It results in the revocation of the offer.
When offer is to be accepted in the prescribed manner if the acceptance is not in the prescribed
manner the offer is revoked. However, if the mode of acceptance is not prescribed acceptance
should be in the usual and reasonable manner. If the acceptance is not so the offer is revoked.
When the law is changed: an offer comes to an end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.

CONTRACT
OFFER+ACCEPTANCE =AGREEMENT
ACCEPTANCE+ENFORCEABILTY BY LAW =AGREEMENT

CONSIDERATION (quid-pro-quo)
Something is given in return from both sides (related to contract)
Consideration simply means something in return (quid pro quo). For a valid contract there must
be consideration from both the sides.
For instance: if Mr. X agrees to sell a plot of land to Mr. Y for INR 10 lakhs then for Mr. X 10 lakhs
will be considered as consideration and for Mr. Y plot of land will be considered as consideration.
As per Indian contract act 1872, section 2(d) consideration means
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 promises to do or to abstain from doing, something.
such act, abstinence, or promise is called a consideration for the promise".
Analysis of definition:
When at the desire of the promisor refer below point 1
The promisee or any other person - refer below point 2
Has done or abstained from doing (past consideration), or does or abstains from doing (present
consideration), or promises to do or to abstain from doing (Future consideration) refer below
point 3
Legal requirements regarding consideration:
1. Consideration must move at the desire of the Promisor-consideration must move at the desire
of the promisor. An act done at the desire of a third party is not a consideration.
Case law. Durga Prasad V Baldev.
In this case on the order of the collector of a town, A built certain shops in the Bazar at his own
expenses.
In consideration of A having spent money in construction, B who came to occupy the shop
promised to pay some money to A.
Later on B refused to pay and A sued B
A's action to recover the money was rejected the shops in this case were not built at the desire of
the promisor to the agreement i.e. B. But they were built at the desire of the collector of town.

Whether A is eligible to recover amount from 'B' as promised?

No, because the shop was not constructed at the desire of B (promisor) , rather it was constructed
at the desire of the officer (another person).
In case of Promisor (Durga Prasad)
Shall come at the desire of promisor only
In case Promisee may come at the desire of promisee or any other person
2. Consideration should move from the promise or any other person-in India,
consideration may proceed from the promisee or any other person who is not a party to the
contract. The definition of consideration as given in section 2 (d) makes that proposition clear.
According to the definition, when at the desire of the promisor, the promisee or any other person
does something such as an act is consideration.
For instance:
Case low: Chinnaya V Ramayya-
An old lady by deed of gift transferred certain landed property to D her daughter on the condition
that daughter was required to pay certain sum of S ( sister of old lady).
On the same day D the daughter executed an agreement in favour of S (sister of stipulated (fixed)
sum
But later on she refused to pay on ground that no consideration has ever passed from S.
Court held that S was entitled to recover the amount. The contract is backed by the consideration.
In this case consideration was furnished by the old lady. It is not necessary that consideration
should come from the promisee (sister of the lady) alone. It may come from any other person and
here it has come from the lady. Contract therefore is supported by the consideration.
.

3. Consideration may be executed and executory-

It simply means when the consideration for The contract has been already provided that known
as executed consideration and where the consideration to the contract promised to be provided
in future than it is known as executory consideration
For instance: A pays Rs 5,000 to B and promises to deliver to him a certain quantity of wheat
within a month. In this case A pays the amount and B makes a promise. Therefore, the
consideration paid by A is executed consideration proposed by B proposed by is executory.
4. Consideration may be past consideration-
The act is done at the before any promise is made, it is called past consideration
Past consideration is no consideration and is not accepted in England , but is aceepted in India.
In this case A committed a murder & requested B to get him pardon from the king .B done a lot of
labour and to do his best to obtain the king's pardon, riding and journeying at his own expenses.
Thereafter A promised to give 100 pounds. Later on he refused to pay. He was held liable
It was held that a past act done at the request of promisor will be good consideration for The
subsequent promise
 As soon as the promise made by promisor for an act done by promisee in past for promisor, the
act so performed by promisee for promisor shall become the consideration for the amount
promised & such past amount will be termed as past Consideration.
5. Adequacy of consideration is not necessary-
• It is not necessary to have consideration to be adequate.
• If a party gets what he has contracted for and it is of some value the court will not
enquire whether it is equivalent to the promise
• The parties to the contract cannot avoid the contract on the ground of inadequacy of
consideration.

6. Performance of what one is legally bound to perform

Performance of an act by a person who is legally bound to perform can be consideration
Example

An agreement made by a client to pay his Lawyer an additional sum if the suit was success. The additional
was payable over and above the fees ready settled.

• It was held that the promise was void for lack of consideration. The Layer was already under pre-existing
obligation to render the best of services under the original contract.

•However a person promises to do more than what he is legally bound to do and is promised the
additional payment for the extra work then additional payment for an extra work is consideration
7. Considerations must not be usery and mist be some value.

• It must be competent, it must be something to which the law attaches some values.
• It should not be physically impossible and it must not be uncertain

Validity of Contract without Consideration:

As per section 25 an agreement made without consideration void. To be valid contract

consideration ought to be present, However there are certain exceptions to this ile in the following
the agreement made without consideration will be val9d and enforceable

i) 1. Natural Love and affection:

There is no consideration yet the contract is valid Because it is affected by the natural love and
affection .In this case the contracts shall be valid following conditions are compiled with

a. There is an agreement in writing.

b. registered

cit is made on account of natural and affection.

d .It is made between parties having near relation to each other

nother worst within and registered agreement betra love and affection between the parles standing
in rear relation jeg husband and wife to each other is enforceable even without consideration

Contract is enforceable by Law even if Consideration is not present in the contract in following cases
 Example

2. Compensation for past voluntary services promise to compensate wholly or in part a person who
has already voluntarily done something for the promisor under section 25. Promise to pay for past
voluntary services is binding provided wing conditions are fulfiled-

the service should have been rendered voluntarily.

• The services must have been rendered for the promisor.

• The promisor must be in existence at the time when services were rendered.
• The promiser must have intended to compensate the promise

3. Promise to pay time barred debt-

As per limitation act 1963, debt not claimed for a period of 3 years then it cannot be Claimed
thereafter

However, a promise to pay time barred debt is enforceable. The promise should be in writing signed
by the person making it or by his authorized agent.

4. Agency-

According to section 15 of the Indian Contract act, no consideration is necessary to create an agency.

It means an agent can be apported even without consideration and the acts done by him will be very
much valid.

5. Completed gift-

Gift made does not require consideration.

The person giving gift cannot take the same back from the other party by talking the plea that no
consideration has moved from the other party.

in case of gifts no consideration is required its immaterial whether or not party stands in near
relationship

6. Bailment of goods Bailment of goods can be affected without consideration if so created. This will
be known as gratuitous bailment.

Privity of contract

Stranger to a contract cannot sue either party

STRANGER TO A CONTRACT CAN SUE/SUIT BY A THIRD PARTY ON AN AGREEMENT

The consideration for an agreement may proceed from a third party. However the third party cannot
sue an agreement. Only a person who is party to a contract can sue on it. The rule of Privity of
contract which means that a stranger to contract cannot sue.

However the above rule is subject to the following expectations:

1. A person in whose favour a charge or other interest in some specified property has been created
may before enforce it though he is not a party to the contract.

Case law: Khawaja Mohd Khan vs Hussaini Begum

In this case A has son. B has a daughter.

A the father of son has agreed with B the father of the daughter that if the daughter of B will marry
the son of A, he will pay the fixed amount (Kharcha - I-Pandan) (A fixed amount).

B's daughter married A's son. But A did not pay the amount.

Though she was not a party to the contract, but she is beneficiary. Therefore, suit by daughter of B on
A is valid.

2. An agreement is made in connection with marriage, partition or other family arrangements and
provision is made for the benefit for a person. He may take advantage of that agreement although he
is not a party to it. In the case of a family arrangements if the terms of the arrangements are in
writing, the members of family who originally had not been parties to the agreement may enforce the
agreement.

For instance: A, B and C are brothers in which A and B live together where as C lives in USA. A family
property was distributed between the sons and according to that each of the brothers will get one
floor in the building. After the death of their father A & B distributed the share of C among
themselves. Later on, after returning from USA C can ask for floor from A and B as he is beneficiary to
the contract.

3. A female member can enforce a provision made for marriage oг other expenses. This provision
was made on the partition of the Hindu undivided family.

Case law: Rakhmanbai vs.Govind. Female member of HUF can sue the male members for the marriage
expenses which were agreed upon between the male members to invest at the time of partition of
HUF property.
 4. In the case of an estoppels (stop from denying) by acknowledgement of liability. This can be
illustrated with the help of example

Example -L gives to M INR 2,000 to be given to N. M informs N that he is holding the money for him.
Afterwards M refuses to pay the money. N will be entitled to recover the same from M. (Here M will
be estopped i.e. stop from denying)

5. There is a condition/covenant running with the land.

The person purchase land with notice that the owner of land is bound by certain
duties/conditions/covenants affecting land. He shall be bound by such conditions/ covenants even
though he is not a party to the original agreement containing those conditions or covenants.

Thus, the covenant/condition affecting the land may be enforced against him though he was not the
original party to the contract.

Competent
Parties in contract shall be competent.
1. Must attain Age of Majority
As per Indian Majority Act 18 years years or more
2. Should be of Sound Mind at the time of entering into contract.
Parties in contract can take rational judgement about the effects on such contract on their interest.
* Person is usually of Sound Mind but at the time of entering into contract is of unsound mind

Contract is not valid (void)

* Person who is usually of unsound mind but at the time of entering into contract is of Sound Mind

contract is valid.

#Unsound Mind

⇒ Idiot, Lunatic ( Mentally ill) ,Drunken Person

3. Not Disqualified by law

a) Alien Enemy

Country with which war is declared by Indica Such country is Alien Enemy

* However, if permission from (or is obtained from Centre Govt. the existing contracts can be enforced
and new Contract can be entered
 b) Convicts: The person who are in jail.

* However, if permission from (or is obtained from Centre Govt. the existing contracts can be enforced
and new Contract can be entered

c) foreign Diplomate : Case cannot be filed against foreign diplomats until

i) they surrender themselves

ii) or With permission from Central Govt.

Offcouse they can Sue Others

d) Company

If Co. enters contract beyond its object clause

Let us suppose the company’s objective is to impart education , but it starts giving loans to different
persons. Then all such loan contracts will be null & void.

CONTRACTUAL CAPACITY

Who is competent to contract? Or Who can enter into a valid contract?

As per section 11 of the Indian contract Act.

a) Every person who has attained the age of majority.

b) Who is of sound mind and

c) is not otherwise disqualified is competent to contract

1. Age of majority-

In India the age of majority is regulated by y the Indian Majority Act.

Every person domiciled in Indian attains majority on the completion of 18 years of age. Chandan

2. Sound mind-

As per section 12-A person is of sound mind if at the time when he makes the contract, he is capable of
understanding it and of forming a rational judgment as to its effect upon his interests.

Section further lay down 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 cannot make a contract when he is of
sound mind.

Idiots, lunatics and drunken persons are examples of those having an unsound mind.

3.Disqualified by law:

a) Alien enemy:

Where a party to the contract belongs to the country from which war is declared then from the date of
declaration of war such party became alien enemy.

Existing contracts with the alien enemy cannot be enforced.

New contracts cannot be entered with the alien enemy.

However with the permission from central government existing contracts can be enforced and new
contracts can be entered into.

b) Convict:

. Existing contracts with the convicts cannot be enforced.

. New contracts cannot be entered with the convicts.

However with the permission from central government existing contracts can be enforced and new
contracts can be entered into.

c) Foreign diplomats:

They can sue others.

However foreign diplomats can be sued only if approval of central government is obtained, or he submits
himself to the court.

d) Company:

Company cannot entered into the contract which is not related to the objects or which fall outside the
scope of it's memorandum of association.

Position of Contract with Minor

1 . An agreement with Minor is Void-ab-Initio.

 Void means Not valid or not enforceable.

Ab initio means from beginning.

→ agreement with minor is not enforceable in court of law.

Position of Minor's agreement

1. An agreement made with minor is void-ab-initio:

An agreement by a minor involves a promise on his part and in the eyes of law he is incapable of giving a
promise which imposes a legal obligation.

As per the provisions of Indian contract act 1872 promise made by the minor is not enforceable in the
court of law even if the minor has obtained the unnecessary advantages from such contract.

Therefore the agreement with the minor is void ab initio.

Case law: Mohori Bibi V Dharamodas Ghose

 In this case a minor A has mortgaged his house in favour of B to secure a loan of an amount
 As part of this certain amount was advanced to minor A by B.
 Later on B filed a suit on minor for the recovery of the amount
 It was held that mortgage was void and was cancelled.
 Held that the minor's agreement is void. There is no question of refunding the amount.
 In this case B who advanced money was aware that A was minor. Court held that if A the minor is
directed to refund the amount, and then this is tantamount (amounts to) to enforce an
agreement which is void.
2. Minor can be beneficiary -
• Though a minor is not competent to contract. There is nothing which prevents him from
making the other party bound to the minor.
• Thus minor though incompetent to contract may accept a benefit.
• A promissory note executed in favour of a minor is valid because he can be a beneficiary
• whereas a promissory note executed by the minor in favour of major is altogether void.
• Where the minor has performed the part of his obligation and the other party to the contract
has not performed his obligation, the minor can sue the other party.
• For example A minor under contract of sale delivered goods to the buyer. Minor can maintain
a suit for the recovery of price.
3. Minor can always plead minority
• A minor's agreement is void. Any money advanced to a minor on a promissory note or
otherwise, cannot be recovered.
• Even when a minor procures a loan by falsely representing that he is of full age, he can plead
his minority in a suit intended to recover the amount from him .
Applicability of doctrine(principle) of restitution(to restore) (Khan Gul V Lakha Singh)
Basically this is discretionary power of the court, means if the court thinks so
Following observations are important in this connection:
• Minor entered into an agreement by misrepresenting his age then the court may grant
the relief to the other party by passing an order, to restore the amount to the other party.
• Restitution (restoring) is possible to the extent the estate of minor has benefitted from
such contract. Minor shall not be personally liable. (Means minor have taken loan , he has
spent this money, You can not recover money from him, however if he has purchased a
property out of this loan , then the amount can be recovered from such property)
• The power of court to grant relief by order is discretionary in nature.
• The court shall not grant the relief if the other party entered into the contract in spite of
the fact he knows about minority of minor.
4. Ratification on attaining majority is not allowed
As a minor's agreement is void he cannot validate it is by ratification on attaining majority.
For instance a minor borrows money and executes a promissory note. On attaining majority,
he executes a fresh promissory note in substitution of the one executed as a minor. The
second promissory note is void as it is without consideration.

5. Contract by guardian-Valid
Though minor's agreement is void. His guardian can under certain circumstances enter into a
valid contract on the minor' behalf.

Where the guardian makes a contract for the minor and which is

Within his (guardian) authority and

Which is for the benefit of the minor such a contract is valid and the minor can enforce such
contract.

6. Liability for necessities -

The contract with minor for necessities is valid and minor's property is liable. Minor shall not
be personally liable for such contract only minor's property is liable.

As per section 68 of contract act 1872 minor is liable for necessities Supplied to him or

to the any person who is dependent on him

 Supplied to him or
 to the any person who is dependent on him

Thus any person would be entitled to reimbursement out of the minor's estate for necessaries
supplied to him and to whom he is bound to support. A minor cannot be held personally liable
for necessaries but his property is liable.

What is necessity? Necessities as defined by the English sale of goods act, mean goods
suitable to the condition in the life of infant as required by him at the time of sale and
delivery. It includes not only food and clothing and housing but also includes the education
and the instruction needed.

For instance: - A minor brought 11 fancy coats from N. He was at that time adequately
provided with clothes. Held not a single coat was necessity. His properties could not therefore,
be attached for its payment. It is immaterial whether the other party knows this or not.

Free Consent

The word consent simply means getting assent i.e. acceptance of another party. However to
make the contract valid the assent should be free i.e. it should not be influenced by any third
factor. Consent may or may not free.
According to section 13 of Indian contract act 1872 the parties to contract are said to have
consented when they agree upon the same thing in the same sense (consensus - ad - idem).
Pods

Section 10 provides that all agreements are contacts if they are made consent is necessary for
the validity of a new contract. Consent is of parties so, free it is not caused by

Coercion ( Threatening)

Undue influence (Emotional Blackmailing)

Fraud

Misrepresentation

Mistake

When it is caused by any of these factor’s consent is not free. Let us now deal with each of
them.

(A) COERCION (Section 15)

 Coercion is the committing or

 threatening to commit, any act forbidden (to stop) by the Indian Penal code
 or the unlawful detaining or
 Threatening to detain any property to the prejudice (to cause loss ) of any person.
 With the intention of causing other person to enter into an agreement. the intention

For instance:

X says to Y: "I shall kill your son or shall not return the document of title relating to your wife
property, unless you agree to sell your house to me INR 5,000".

Y to X "All right I shall sell my house to you for INR 5,000; do not kill my son or do not detain
my wife's documents of title".

X has employed coercion. A contract entered by coercion is voidable and not valid. That
means it can be enforced by the party coerced (Y) but not by the partly using coercion (X).

Voidable
 Special points:

It is not necessary that where coercion is employed IPC is applicable

For the application of the coercion, coercion may be employed by the outsider to outsider or
by outsider to any party of the contract.

What is necessary is that the party making a contract must be induced by the coercion.

For instance:

A, B are in the English ship in high sea.

A by the use of criminal intimidation induced B to enter into contract.

This criminal intimidation is punishable in IPC though it is not an offence in the English act.

When A, B reached Kolkata then A filed the suit for the breach of contract against B.

A has employed coercion although his act is not an offence by the law of England and although section
506 of Indians penal code which makes this as offence was not in force at the time or the place where an
act was done.

It was held that the contract was entered into by the coercion so that contract is voidable at the option of
B.

Threat to commit suicide is coercion: Case law: Amiraju V Seshamma:

By threat of suicide a Hindu induced his son and wife to execute a release deed in favour of his brother in
respect of certain properties which they claimed as their own.

It was held that the contract was entered into by coercion. It was held that the threat of suicide amounted
to coercion and the release deed was voidable.

Consequences of coercion (section 19)

The contract caused by coercion is voidable at the party whose consent was so obtained. Under section 72
a person to whom money has been paid or anything delivered by coercion shall repay such money or
return such thing.

(B) UNDUE INFLUENCE -

As per section 16: a contract is said to be induced by "undue influence"

• Where the relations between the parties are such that

• one of the parties is in a position to dominate the will of the other and
• Uses that position to obtain an unfair advantage of the other

A person is deemed to be in a position to dominate the will of the other when he holds authority real
( blood Relation) or apparent (Fiduciary) over the other or when he stands in a fiduciary relation with the
other.

For instance: A father by reason of his authority over the son can dominate the will of the son. A advanced
sum to his son B during minority. A obtains by misuse of parental influence a bond from B for greater
amount when B comes of age. Here A employed undue influence.

Again by reason of fiduciary relationship, a solicitor can dominate the will of his client and a trustee can
dominate the will of the beneficiary. Similarly a person whose mental capacity is affected by age, illness or
distress may be dominated by undue influence.
For instance doctor is deemed to be in a position to dominate the will of his patient affected by illness. So
A enfeebled by disease is induced by doctor's influence agrees to pay Unreasonable sum. Doctor has
employed the undue influence.

Features of undue influence:

a) One of the contracting parties dominates the will of another.

b) It has a real or apparent authority over the other or stands in a fiduciary position to the other.

c) Sometimes the parties to an agreement are so related to each other that one of them is able to
dominate the will of the other and to obtain his consent to an agreement.

For instance: A spiritual adviser for example in a case induced his devotee to gift to him the whole of his
property to secure benefits to his soul in the next world. Such consent is said to be obtained by undue
influence of some kind of the other do such a thing.

d) The dominating party has taken an unfair advantage over the weaker party. However if the contract is
made in the ordinary course of business, it cannot be said to have been induced by undue influence.

For instance: A has applied for loan to the banker. There is shortage in the market for the money. So the
banker refused to make the loan except at higher rate of interest. The contract was made at higher rate of
interest. It was held that the transaction was made in the ordinary course of business and so there is no
case of undue influence. The rate of interest being very high is the natural outcome of the shortage in the
money market.

Consequences of contract entered into by undue influence

When consent to a contract is caused by undue influence the contract is voidable at the option of the
party whose consent was so obtained.

Any such contract may be set aside either absolutely or if the party who was entitled to avoid it has
received any benefit may return the benefits received.

For instance: X, money lender advances INR 1,50,000 to Y an agriculturist and by undue influence induces
Y to execute a bond for INR 2,00,000/- with interest at 6% per month. The court may set aside the bond
ordering Y to repay RS. 1,50,000/- with such interest as court may think fit.
FRAUD: As per section 17 of the act "Fraud" means and includes any of the following acts committed by a
party to a contract

• The suggestion as to a fact which is not true by one(A) who does not believe it to be true.
• For instance: Mr. A offered Mr. B to sell the old car of him and said it is not an accidental car.
However, A knows that the car is accidental. Here A is suggesting a fact which is not true and
Mr. A also knows about it.
• The active concealment (hiding) of a fact by one having knowledge or belief of the fact when
there is Fiduciary relationship between the parties.
• A promise made without any intension of performing it
• Any other act fitted to deceive
• Any such act or omission as to law specifically declared to be fraudulent

Essential of the fraud: -

• The act must be committed with an intension to cause harm (deceive).

• The statement made must be false and should relate to a material fact of agreement.
• The person who makes the statement does not believe it to be true.
• The act must be committed by the party to the contract.
• Other party relied on false representation.
• The party must be deceived by the fraud.

Mere silence is not a fraud:

For instance: A sells the horse which he knows to be unsound. He keeps silent. He does not convey about
the unsoundness of the horse. B bought it and found it unsound. In this case there is no fraud.

However silence may become fraud in following cases: -

It is the duty to speak and person remains silent:

Duty to speak arises where one contacting party possesses trust and confidence in other party.

For instance: The father sells the horse to his daughter. Because of relationship, daughter trust in father.
Now it the duty of the father to disclose the fault which he did not do, the daughter was deceived by the
silence of the father. This is a case of fraud.
Duty to speak also arises where one party completely depends upon another party. For instance: the
insurance company known nothing about the life and circumstances of the assured, it has to depend on
the disclosures made by the assured. It is therefore the duty of the assured to put the insurer in
possession of all the material facts affecting the risk covered.

Where silence is equal to speech: The seller sells the article. The buyer asks if you do not deny I shall
presume that horse is sound. The seller remains silent. Here his silence is equal to speech which indicates
that horse is sound. This is fraud if horse bought turns out to be unsound.

Where silence is equal to speech: The seller sells the article. The buyer asks if you do not deny I shall
presume that horse is sound. The seller remains silent. Here his silence is equal to speech which indicates
that horse is sound. This is fraud if horse bought turns out to be unsound.

(C) MISREPRESENTATION:
• A person suggests something which is not true but he believes it to be true.
For instance: Mr. A said to Mr. B that car of Mr. C. is not an accidental car. Mr. A also believes that car
is not accidental but actually car was accidental. Now Mr. A made the statement which is actually
not true but he himself believes it to be true.
• Misrepresentation made is innocent. The contract entered by misrepresentation but without
any intention to deceive.
• However, the person so mislead can avoid the contract.
For instance: A makes a positive statement to B that C will be made the director of the company. A
makes the statement on information derived directly from C. Statement amounts misrepresentation.
The information received by A was false. He believed to be correct. On his positive statement B entered
into correct. Contract was caused by ed into misrepresentation
Section 19: Essentials of misrepresentation: -
• The statement made must be of material facts
• The statement should be false
• The person making it believes it to be true through there is no sufficient reason for his belief.
• The person who makes the false statement has no intension to deceive
• The representation must induce the other party to contact.
• The party is misleading by such statement and enters into the agreement.

Consequences of Fraud, Misrepresentation etc. (section 19) are as follows:

Contract is caused by coercion, fraud or misrepresentation. Such a contract is voidable at the option of the
party whose consent was so obtained.

However, if the contract is caused by fraud or misrepresentation, the party may insist that the contract
should be performed and, that he should be put in the same position in which he would have been if the
representation made had been true.

For instance: A fraudulently informs B that A's estate is free from encumbrance. B thereupon agrees to
buy the estate. The estate is however subject to mortgage. B may either avoid the contract onmay insist
for the mortgage debt redeemed.

Consent was caused by misrepresentation or silence which amounts to fraud. The person cannot avoid the
contract if he had the means of discovering the truth ordinary diligence.

Consent was caused by misrepresentation or silence which amounts to fraud. The person cannot avoid
the contract if he had the means of discovering the truth ordinary diligence.

For instance: A by a misrepresentation leads to B to believe erroneously that 750 tons of sugar is produced
per annum at the factory of A. B examines the accounts of the factory which should have disclosed that
only 500 tons had been produced if ordinary diligence had been exercised by the buyer. B purchased the
factory. In the circumstances B cannot repudiate(Cancel) the contract on the ground of A's
misrepresentation.
Please note: the contract is voidable at the option of the party. However in the following circumstances
option to avoid the contract is lost:-

The party who is entitled to avoid the contract accepts the benefits under the contract or expressly or
impliedly accepts the contract after he comes to know that the contract is voidable and he can avoid the
contract.

Before the party avoids the contract the third party bonafide enters into the transaction

The party who has right to avoid the contract does not act within reasonable time.

Distinction between fraud and misrepresentation

Fraud Misrepresentation
Party making the statement doesn't believe it to Party making the statement believes it to be true
be true.
It is intentional. It is innocent.
The purpose is to deceive the other party with a The purpose is not to deceive another party
view to obtain unnecessary advantage
Party affected by misrepresentation can avoid the Party deceived by misrepresentation can avoid can
contract but cannot claim the damages not claim the damages (compensation).

The active concealment of fact is considered as The unintentional concealment of fact which was
fraud. the necessary part of contract is
misrepresentation

Mistake:

AS To Law: (Indian Law): for instance, you crossed red light and you can not say that you don’t know the
law that crossing of red light is an offence and you have to pay the fine.

(Foreign law ): Let us suppose for instance, a foreigner crossed red light and in his country red signal
means to start & no information is given about to stop on red light is given, he can be absolved of this
offence offence and will not have to pay the fine as it is bilateral mistake. It is treated as mistake of fact.

As to fact:
LAWFUL OBJECT AND THE CONSIDERATION

To make the contract valid both the object for which the contract is made and the consideration of the
contract shall be lawful. If either the consideration or object is unlawful the contract will not be called as
he valid contract.

For instance: a) if the contact is made between A and B, where B will kill Cand in return A will give the INR
10 lakhs to B now in this case the consideration by B for A in not lawful and also the object of the contract
is unlawful.

Consideration or object of contract is unlawful, if

• It is forbidden by law or
• It defeats the provision of law or
• It is fraudulent; or

b) Another example where A promise to give job to B in his office but in return demands INR 1,00,000 as
donation now in this case the object of the contract is legal but the consideration by B to A is not lawful.

• It involves injury to the person or the property of another or

• It is immoral; or opposed to the public policy.

Circumstances which make consideration as well as an object unlawful are discussed below:

 Forbidden by law:

Where the object of contact is forbidden by law, the agreement is unlawful and is void.

For instance: A was licensed to run a liquor shop. The act forbids the sale transfer of the license or the
creation of partnership to run the shop. A took B into partnership. The agreement of partnership would be
void.

However imposing penalty for a particular transaction under any law cannot be sole ground for the
purpose of declaring the contract as void, on the ground that it is forbidden by law.

For instance: A license to cut grass is given to X by the forest departments under the forest act.

One of the conditions to license prescribes that the forest officer should be intimated in case license is
sold to another party otherwise a penalty of amount will be imposed. Please note that fine is prescribed
for the breach of the condition but it doesn't mean that transfer of license is forbidden by the law.
Therefore, contract is very much valid.

 Defeat of the provision of law-

Suppose there is an agreement under which the debtor shall not plead the period of limitation.

The object is to defeat the provisions of the limitation act. Therefore, the agreement is void.

For instance: Accused (person who has done something wrong) is required under the criminal procedure
code to furnish a surety (Person who gives the guarantee is known as surety) for the sum of five thousand
rupees for his good behaviour. He deposited the sum with B and requested him to become the surety.
After the period of surety ship is over the accused sues B for the amount. The agreement was void. Money
is irrecoverable. The intention of the law in requiring a surety is that the surely shall at his own risk see to
the appearance of the accused. This purpose is defeated by the above agreement.

 Fraudulent

If the two parties to the contract agrees to contract which results in fraud with the third party then such
contract is void.

For instance: A an agent for a Zamindar without the knowledge of his principal agrees to grant lease for
money to B of the land which belongs to the principal. The agreement between A and B is void.
  Injury to the person or property of another:

The general term "injury" means criminal or wrongful harm.

For instance: An agreement to print a book in violation of another's copyright is void as the object is to
cause injury to the property of another. (It is also void as the object of the agreement is forbidden by law
relating to copyright.)

A person borrowed a sum of hundred rupees and executed a bond promising to work for another person
for a period of two years. In case of default the borrower was to pay exorbitant interest and the principal
sum becomes payable at once. Here a promise to repay by, manual labour is illegal as it imposes in
substance the slavery (Slavery is a system under which people are treated as property which can be
bought and sold). The consideration involves injury to the person. The agreement is void.

consideration involves injury to the person. The agreement is void.

 Immoral

The law does not allow an agreement which includes the immorality. What is immoral depends upon the
standard of morality.

For instance: (a) A landlord cannot recover the rent of a house knowingly let to prostitute who carries on
her vocation there. Here the object is immoral and the agreement to pay rent is void.

(b) Where P had advanced money to Da married woman to enable her to obtain a divorce from her
husband. D had agreed to marry him as soon as she could obtain the divorce. It was held that P was not
entitled to recover the amount. The agreement seeks the divorce of D from her husband and consequent
promise of marriage was against good morals.

Agreement opposed to public policy:- Agreement opposed to public policy mean that agreement which
have a tendency to injure public interest or the public welfare. Following are heads of public policy:

Trading with enemy.

Any agreement with an alien enemy at times of war without the license of government is void.

Here the agreement to trade to trade offends against the public policy as it against the interest of the
country in times of war.

Stifling prosecution (Disturbing the process of prosecution)

It is in public interest that criminal should be prosecuted and punished. An agreement not to prosecute an
offender or to withdraw a pending prosecution is void.

Let us suppose B has murdered A, & C is witness of the crime. If some how C is pressurised either to
retract from witness or to abstain from appearing on the date this is called Stifling prosecution.

You will not make a trade of a felony (serious crimes). However the law allows compromises in respect of
compoundable offences (in which settlement is allowed according to the law).

Meana if A has murdered b, The family of B can not enter into an agreement to withdraw the murder case
against A at any cost.

However if A has done any loss to B, they can enter into an agreement in such case.

Maintenance and Champerity

• Where a person agrees to provide funds or otherwise to the other person, to file suit and has no
monetary interest of his own. This is known as maintenance.
• For instance: X promises to pay Y RS 25,000/- for bringing a suit against Z. X's sole motive is to
ensure to sue Z to annoy him.
• Champerty is an agreement whereby one party helps/assists another in recovering money or
property and in the turn demands share in the gains arising from such action.
 • 1 For instance: X promises to pay Y RS 25,000/- for bringing a suit against Z and in turn X will take
the 50% of the compensation amount that Y might receive.
• The agreement for supplying funds by way of Maintenance or Champerty is valid unless (a) It is
unreasonable so as to be unjust to other party(Unless intention is to harm the other party) or (b)
It is made by a malicious
• motive like that of gambling in litigation or oppressing other party by encouraging unrighteous
suits and not with the Bonafide(good intention) object of assisting a claim believed to be just( it is
just done with malicious object with gambling with law process)

Interference with the course of justice-

 Any agreement which creates interference in the ordinary process of justice is void.
 For instance: Mr. A provides money to the B (a senior official) to transfer the existing Judge is
against the public interest and void.
 Similarly a promise to give money to induce a person to give false evidence is void.
 For instance: X promises to give money to B, if B will give the false statement before the court is
void.
 However, an agreement to valid. to refer present or future dispute to arbitration is not void. It is

Marriage brokerage contracts:

 An agreement to procure the marriage of a person in consideration of sum is money is called

marriage brokerage contracts.
 Marriage brokerage contracts are void.
 For instance: If X promises to give INR 500 to Y, if Y will procure the wife for X is void as it is
marriage brokerage contract.
 it is marriage brokerage contract.

Creation of interest which is opposed to duty -

 I If the person by an agreement agrees to do something which is against his duties then such
contracts will void-ab-initio.
 For instance: (a) An agreement by a newspaper proprietor not to comment on the conduct of a
particular person for extraneous consideration is unlawful as it is against policy.
 (b) A who is the manager of a company, agrees to pass the tender for X, if X pays to A INR 14,500
privately the agreement is void.

Sale of public offices

 An agreement for interference in the government working regulations is completely void.

 It can be by way of appointing person in government office or by way of manipulating the files of
deserving candidates to securing national awards.
 For instance: An agreement to procure a public recognition like Padma Vibhushan or Padma shri
for reward is void.

Agreement for the creation of monopolies

 Agreement with the object of creating monopolies and thus earning abnormal profits is opposed
to public policy. Therefore, it is void.
 For example: A ask B & C his competitor to stop the business & I will pay you a fix sum of
Rs.10,00,000/ Annum thus monopolising his business. This agreement is void.
is opposed to public policy. Therefore it is void.
Agreement in restraint of marriage
As per section 26 every agreement in restraint of marriage of any person minor is void. other than
a minor is void.
For instance: A promised to marry none else except Ms B if she pays her INR 1,00,000.. A married
someone else and B sued A for the recovery of the sum. Held the agreement was in restraint of
marriage and is void.
 Agreement In Restraint Of Trade:
Case Law: Madhup Chander V Raj Kmar the plaintiff and defendant were rival shopkeepers in a
locality in Calcutta. The defendant agreed to pay a sum of money to the plaintiff if he would close
his business in that locality. The plaintiff accordingly did so. But the defendant refused to pay. The
court held the agreement was void and so the plaintiff cannot recover amount from the
defendant.

But the rule "Agreement in restraint of trade" is subject to the exceptions: -

Sale of goodwill (explanation to section 27)
✓ In case person sold its business goodwill to another then he shall not carry such business until
and unless otherwise agreed.
Exception under Indian partnership act:-
✔ Under section 11 of the partnership act an agreement partner not to carry business
other than that of the firm while they are partners in the firm is valid. Thought it is in
restraint of trade.
 Under section 36 of the Indian partnership act an outgoing partner makes an
agreement with the continuing partners that he will not carry on any business
similar to that of the firm within the specified local limits, and within specified
period, such an agreement it will be valid. Though restrictions are in the restraint
of trade yet the agreement is valid if the restrictions imposed are reasonable.
 Under section 54 of the Indian partnership act upon or in anticipation of dissolution of
firm partners may agree that some or all of them will not carry on business similar to that
of the firm within specified period or local limits.
 Under section 55 partners may agree with the buyer of goodwill after dissolution not to
use the firm name or carry on firm's business or solicit (to attract) clients of the firm.

Exception in regard to service agreements: -

An agreement of service by which an employee binds himself not to compete with his employer during
the term of his agreement is not in the restraint of trade. Such an agreement is valid.

AGREEMENTS EXPRESSLY DECLARED VOID

Certain agreements have been expressly declared void by the contract act. These are void ab-initio and do
not give rise to any legal consequences and some of them have been before. They are as follows:-
Agreements with incompetent people (section 11)
Agreements with an unlawful object or consideration (section 23)
Agreements made under mutual mistake of material fact (section 20)
Agreements made without consideration (section 25)
Agreements in restraint of marriage, trade or legal proceedings etc.
(All the above points has been already discussed in earlier chapters)
Wagering agreement:
According to Sir William Anson - It is an agreement to pay money or money's worth upon the
determination of an uncertain event.
For instance: There is a bet between A and B. A promises to pay to B INR 1,000/- if it rains. B promises an
equal amount if it does not rain.
As per section 30 agreements by way of wagers are void.
Characteristics of wagering agreement:-
 Event is uncertain which means that either the event has not yet taken place or if the event has
happened the parties are unaware of the result. means that
 For instance: Bet between A and B of INR 1,000 that yesterday in cricket match there was the rain
or not. If neither A nor B knows about it then it will be considered as wagering agreement.
 Neither party should have control over the happening or non happening of the event. If one party
has control over the event, the transaction is not wagering one.
 For instance: Bet between A and B whether there will be a red signal in next 50 seconds or not
and B has the power to control the signaling system then it cannot be considered as wagering
agreement.
 The essence of a wager is that each side stands to win or to lose. It depends how the uncertain
event takes place. However if either of the parties may win but cannot lose or both may lose and
cannot in, it is not wagering agreement.
 Neither party should have legitimate interest in the occurrence or non occurrence of the event
other than the sum or stake.
 For instance: If X promises to Y to pay him INR 10,000 if the truck doesn't reach on time containing
the goods of Y is not a wagering agreement as Y having legitimate interest in the goods.
EFFECT OF WAGERING AGREEMENT
• Wagering agreement is void.
• No suit shall be brought for recovering the amount won by the wager.
Wager and collateral transactions-the consequences of the wagering agreement may be
• Wagering agreement is void.
• However in Gujarat and Maharashtra the wagering is illegal
• The only material difference between the void and illegal agreement relates to their effect
upon the collateral transaction. A collateral transaction is one which is attached to the main
transaction.
Wagering agreement if it is void then transaction collateral to wagering transaction is not void but
they are valid.
For instance: Money is given to a person to enable him to pay a wagering debt the wagering
agreement is the main transaction and the loan is subsidiary to it. So, the loan-a collateral transaction
is valid and it is enforced being the wagering agreement the main transaction is only void.
• Also a broker in a wagering transaction being void can recover his brokerage.
• Similarly a principal can recover from his agent the prize money received by him on account of
a wagering transaction being void.
The only material difference between the void and illegal agreement relates to their effect upon
the collateral transaction. A collateral transaction is one which is attached to the main transaction.
Exceptions of wagering agreements:
Sale and purchase of shares, stock and goods:-transaction for sale and purchase of stocks shares or
for sale and delivery of goods with intention to give and take delivery are not wagers. If
the intention is only to settle the price difference the transaction is a wager and so it is void.
Competitions: - Prize competitions which involve the skill, for example the picture puzzle crossword
competition, athletic competitions act are not wager. As per the Prize competition act, 1955 prize
competitions in games of skill are not wager provided the prize money does not exceed 1,000/-.
Lottery is a game of chance not skills and therefore it is wagering agreement. Similarly, a crossword
puzzle in which prizes depends upon matching of competitor solution with a previously prepared
solution kept with the editor of a newspaper is a lottery and so a wagering transactions.
Horse race contributions:-if any contract is made to reward a prize in kind or cash for a value 500 or
more is not void.
Contract of insurance is not wagering agreement-
Though the payment of money by the insurer depends upon a future uncertain event insurance
contract is different from the wagering agreement because of the following reasons:-
Wagering agreements Insurance agreements

Party has no interest other than the stake of Party entering into an insurance agreement has
money lost or win personal interest either in the form of family
protection after his death or health protection in
case of any disease or injury.
Are against the public interest or opposed to Are beneficial for the public or in other words are
public policy in public interest
Loss amount is paid or winning amount is Purpose to provide fund in case of necessities.
received
Are void Are valid
amount is fixed by mutual agreement between Amount of policy is fixed by customer and
parties premium amount is fixed by insurance company
which requires skills.
 PERFORMANCE OF CONTRACTS
By whom contract may be performed?
The promise under a contract may be performed by the promisor himself, representative. Following
points are relevant in this regard anac or by his agent of his legal
Promisor himself-
if it was intention of the parties that the promise should t promise must be performed by the
promisor. be performed by the promisor himself
• Contracts which involve the exercise of personal skill or diligence of promisor must be and shall be
performed by the promisor himself,
Agent-
• Personal consideration is not necessary for the contract except in case where the performance of
contract requires personal skills of promisor.
• Promisor may employ a competent person to perform it.
Representatives-
• Representatives of the promisor may also perform the contract, in case of death of the promise
subject to the condition the contract doesn't requires the personal skills of promisor himself.
if the contract requires the personal skills of promisor, then the contract will become void on the
death of promisor.
Third persons-
• As per section 41 of the act when a promisee accept performance at the promise from a third
person, he cannot afterwards enforce it against the promisor.
• It is not necessary that the promisor has authorized the third person to perform. Third person may
have performed it at his own will.
• For instance -A received certain goods from B promising to pay INR 14,000/-. Later on A was unable
to pay the amount and C on the behalf of A paid the amount, and A was not aware of the
payment. Now the intention of B is to sue A for the amount of INR 10,000/-, He con not do so. B is
entitle to recover only balance amount of INR 4,000 from A.
Joint promisor's
• A per section 42 of the act when two or more persons have made a joint promise then unless a
contrary intention appears from the contract then following shall be the consequences:
All such persons must jointly fulfil the promise
If any of them dies his legal representatives jointly with the surviving promisors must fulfil the
promise.
If all joint promisors' die, the legal representatives of all of them must fulfil the promise jointly.
QUASI CONTRACTS
Quasi contracts are based on principal of equity justice and good conscience. Quasi contracts intend
to prevent unjust enrichment le. enrichment (benefit) of one person at the cost of another.
Generally promisor undertakes the duty to perform the contract or he promisor performs the contract
when it is desired by the promise. However, in case of quasi contracts obligation to perform the
contract is performed by the law, upon a person for the benefit of another and even in the absence of
a contract. Such cases are known as quasi contracts.
Types of Quasi contracts
1) Supply of necessaries-(section 68):
• Supplier is entitled to recover the price from property of the incompetent person
• . Where necessaries are supplied to a person who is incapable of contracting or to someone
whom he is legally bound to support
• For instance: A supplies to B necessaries suited to B's status in life, A would be entitled to
recover their price from B's property. He would also be able to recover the price of
necessaries supplied by him to his (B's) wife or minor child since B is legally bound to support
them. However, if B has no property nothing would be realizable.
• Price shall be only of necessaries and not of articles of luxury which can be recovered.
• To establish his claim the supplier must prove not only those goods were supplied to the
person who was minor or a lunatic but also those they were suitable to his actual
requirements at the time of the sole and delivery.
2) Payment by interested person: (section 69)
• A person who is interested in the payment of money pays the money which another is bound
to pay, then the person who pays is entitled to be reimbursed by the other.
• Before this becomes enforceable following conditions be complied:-
• Person must be interested in making the payment, but he should not be bound to pay
 • Defendant should be under legal obligation to pay
• Payment is made by one who is interested in payment
• For instance: 8 holds land in Bengal on lease granted by A, Zamindar. The revenue payable by
A to the government is in arrears. His (A) land is advertised for sale by the government. The
consequences of such sale will be cancellation of B's lease. B in order to prevent the sale and
consequent cancellation of his own lease pays to the government the sum due from A. A is
bound to pay the amount to & which he has paid.
3) Liability to pay for non gratuitous acts: (section 70)
• Where a person lawfully does anything for another person, or delivers anything to him, not
with an intention to do so gratuitously (gift), and such other person enjoys the benefit, then
the person who enjoys benefit is bound to make compensation.
• In thus follows that for a suit to succeeds the plaintiff must prove: (i) that he had delivered the
thing lawfully: (i) that the intention was not to do so gratuitously and (i) that the other person
enjoyed the benefit.
• If a person delivers something to another or does something for another it would be open for
the other person to refuse the thing and return it or may refuse the benefit of service. In that
case section 70 would not come into operation.
4) Responsibility of finder of goods:
• "A person who finds goods and takes them into his custody is subject to the same
responsibility as a balee (A person to whom goods are delivered for some purpose and, shall
return the goods when purpose is accomplished) and he is therefore required to take proper
care of thing found.
• He shall not use it for his own use. When the owner is traced he must return it to the original
owner. He must take as much care of goods found as a man of ordinary prudence (reasonable
person) would take care of his own goods.
• 5) Liability for money paid for thing delivered by mistake of under coercion:
• A person to whom money has been paid or anything delivered by mistake or under coercion
must repay to whom money has been paid or anything delivered by mistake or under coercion
must repay or return it"
• For instance (1) A and B jointly owe INR 1,000 to CA pay the full amount to C. B who does
• not know the fact, by mistake pays INR 1,000 again to C.C is bound to pay the amount to B.
(Railway company refuses to deliver certain things to the consignee except upon payment of
an illegal charge for the carriage. The consignee pays the sum charged in order to take delivery
of goods. He is entitled to recover so much of illegal charge paid by him.