Law has different connotations for different peopl

For
Citizen-it is a set of rules he has to obey
Lawyer-it is a vocation
Legislator-it is created by him
Judge-it consists of guiding principles to make dec

In the words of Salmond,

It is the body of principles
Recognised and applied by the state
In administration of justice

Object of law is order and

Result of order is the men enabled to look ahead
With some sort of security as to the future
Ignorantia juris not excusat

Ignorance of law is no excuse

 -------

Business legislations is that part of general law which relates to Industry, tr

Commerce.
Business, Commercial and mercantile are synonymous.
Unit-I
Prior to the enactment of ICA,1872
English common law was applied to
Indian Natives which led to many
Inconveniences

Later statutes were enacted to regulate

The contracts were Hindus and Muslims
Were the parties for themselves
Seperately

Later a need was felt to devise a

General law to regulate the contracts
Was felt which led to the development of Indian Contract Act, 1872.
Unit-II
This is the law which relates with regulating the
Contracts relating to the sale of goods that is the
Movables other than money

Initially the regulation of contracts relating to

sale of goods was in accordance to Sec 76-123
Of ICA, 1872 but it is not exhaustive

Later the contracts relating to sales of goods was

In accordance to Sale of Goods Act, 1930
Unit-III
Proprietary form replaced partnership
organisations

Growth lead to many evils

Chapter IX of ICA, 1872 consists provisions

To regulate but not exhaustive

Act considered indispensable to regulate

Then Partnership Act, 1930 came into existence

Which assumed importance to several
Registered and unregistered partnership firms
Unit-IV
Negotiable (Transferable)
Instruments (Documents)

Thus it is the law relating

To transferable documents
Promissory notes
Bills of exchange
Cheques.
Unit-V
Business continued to expand and capital
To unlimited extent was required

Then introduction of corporate sector became

A boon to the society

But greatest disadvantage was unlimited

Liability

Then came the Company Law, 1956 to regulate the entire organisation an
Management of companies in India
 Unit-I

Section 2 (h)
defines
Contract as

Agreement-1

Enforceable by
law-2

Prior to the enactment of Indian Contract Act, 1872 English common law w
Applied indiscriminately to Indian Natives.
Object of law of contract
Law of contract determines the -----Circumstances in which promises made
contract are legally binding on them

Its rule defines remedies that are available in a court of law against a person
To perform his contracts and conditions under which remedies are available

Thus
Law of contract brings definiteness to business transactions

Purpose of law of contract

The purpose is to ensure realisation of
reasonable expectations of the parties who enter into
Agreeme According to
nt
Sec 2(e)

Every promise or a set of promises

Forming consideration for each other form an agreement

Therefore an Agreement = Offer + Acceptance

Contract = Agreement + Enforceability at law

All agreements are not contracts but all contracts are agreements

FEATURES OF AN AGREEMENT TO BE CALLED A CONTRACT:

1. Plurality of the parties
2. Consensus ad-idem
3. Legal obligation

1. Plurality of the parties; for every agreement, there should be minimum two parties because one
person alone cannot enter into an agreement with himself.

2. Consensus ad-idem; the minds of both the parties must be in ad-idem, i.e., both the parties must
think of the same subject matter the same time and in the same sense.

3. Legal obligation; an agreement, to become a valid contract, it should end in legal relations.
Agreements without legal obligation will not be able to construct a contract. These agreements are purely
domestic arrangements.

For EX. Agreement between husband and wife, father and daughter, etc.), they will not be able to form any
legal obligation between the parties.

4.Balfour vs Balfour
A husband promised to pay his wife a household allowance of 30 dollars every month. Later the parties
seperated and the husband failed to pay amount. The wife sued for the allowance. Held, agreements such
as these were outside the realm of contract altogether.
Importance of contract
Contracts Help To Avoid Misunderstandings
A business contract states the terms and conditions of any business transaction,
including product sales and delivery of services. This helps the parties involved to
avoid any type of misunderstanding that may arise in the absence of a written
contract.
If you are collaborating with a friend on your new business, then it is all the more
important to create a written contract. This will help you avoid any
misunderstandings - and consequently will save you from the rifts that might end
your friendship.
If you have an oral agreement, you might forget some points that you have agreed
on verbally with the passage of time. But with a written agreement, all the terms
and conditions are crystal clear at any point in time. And you can always amend
the agreement with the consent of both the parties.
Written Contracts can be Enforced More Effectively Than
Oral Contracts
Many people are unrealistic when it comes to creating contracts. You should not
take it for granted that the threads of your relationship (business, personal or
otherwise) are strong enough to face any crisis. The fact is that disagreements can
and do arise, especially between friends and family members, and especially when
a close personal relationship is intertwined with a business one.
When you get into a verbal contract, you may not mention things that seem to be
obvious. It is these issues that usually create trouble in the future when you want
to enforce any agreements that have been made. Conversely, when you get into a
 Written contracts can be exercised
More effectively

Avoids misunderstandings
Nature of Law of Contract:
The law of contract is not the
whole law of agreements nor is it the
Whole law of obligations
Law of contract is not the whole law of agreements

Type of Agreement Whether the law of

contract covers such
agreements
1. Agreements where Yes
the parties intend to
create legal obligations.
Ex: Business
agreements
2. Agreements where No
the parties do not intend
to create any legal
obligation, Ex: Social
agreements
Law of contract is not the whole law of obligations

Type of obligation Whether the law of

contract covers such
obligations
Obligations which arise Yes
out of agreements
Obligations which do not No
arise out of contract

The law of contract does not cover the obligations which do not arise out
Of agreements. For example, to obligation to maintain wife and children,
Obligation arising from the judgment of the courts etc.,
An agreement to be called as a contract should fulfill the essentials of a
valid contract

According to Section 10 of Indian Contract Act there are

10
Essential Elements of a Valid Con
 Essential Elements of a Valid Contract:
1.Offer and acceptance
2.Legal relationship
3.Consensus ad-idem
4.Free consent.
5.Capacity or competency of parties
6.Lawful object
7.Lawful consideration
8.Certainty and possibility of performance
9.Agreements not declared to be void
10.Legal formalities
Offer and Acceptance
1. Offer and Acceptance; In order to create a valid contract, there
must be an agreement between two parties. An agreement involves a
valid offer by one party and valid acceptance of the same by the other
party.
The most important aspect of a valid proposal is that it should be
voluntary. It should not be an answer to a question or a replay to an
enquiry and it should be communicated.
CASE: HARVEY (vs.) FACEY.(Bumper Hall Pen)

A husband promised to pay his wife a household allowance of 30

every month. Later the parties separated and the husband failed to pay
the amount. The wife sued for the allowance. Held, agreements such as
these were outside the realm of contract altogether. BALFOUR vs
BALFOUR

The most important aspect of a valid acceptance is that it should be

given by the promise only but not by any body else. So an acceptance
given by a third party will not create a promise.
CASE: BOULTON (vs.) JONES.
Legal Relationship
2. Legal relationship; the parties must intend their agreement to
result in legal relations. This means that the parties must intend that
if one of them fails to perform his promise, he shall be answerable for
that failure. In law the lending case on this point is
Rose and Frank Co. vs. Cromption Bros (1925)
Point decided is Two firms entered into a written contract for the sell
and purchase of tissue paper the agreement contained a clause to
the effect that
this agreement is not entered into a formal agreement and shall not
be subjected to legal jurisdiction in the law of court,
Later on goods were not delivered, the buyers brought an action for
non-delivery. It was held that there is no contract as the parties never
intended to create legal relationship.
Consensus-ad-idem
3. Consensus-ad-idem; the minds of both the parties must be
ad-idem. In other words, the two parties must have agreed
about the subject matter of the contract at the same time and
in the same sense.
EX: A, who owns two horses named Rajhans and Hansraj, is
selling horse Rajhans to B.B thinks he is purchasing horse
Hansraj. Therefore no consensus ad idem and consequently no
contract.
4. Free Consent (Permission or Willingness); an agreement
must have been made by free consent of the parties. Consent
may not be free either on account of mistake in the minds of
the parties or an account of the consent being obtained by
some unfair means like coercion, fraud, misrepresentation or
undue influence. In case of mutual mistakes, the contract would
be void, while in case the consent is obtained by unfair means,
the contract would be voidable.
CASE: RANGANAYAKAMA (vs.) ALWAR CHETTY
A young girl of 13 years was forced to adopt a boy to her husband who
had just died, by the relatives of the husband.
The relatives of the husband prevented the removal of the body of the
husband for
Cremation until she consented
Held that the consent was not free but was induced by coercion.
Consequently the
Adoption was set aside.
Free consent
 minor
Person with unsound mind

Competency of
parties
Disqualified from contracting in any
Lawful object
5. Competency of parties: The parties to the agreement must be
competent to contract. If either of the parties to the contract is not
competent to contract the contract is not void. According to sec11,
following are the persons who are competent to contract.

Who are of the age of majority according to the law to which they are
subject?
Who are of sound mind
Who are not disqualified from contracting by any law to which they are
subject?

6. Lawful object; the object of an agreement must be lawful. Object

has nothing to do with consideration. It means the purpose or design of
the contract. Thus, when one hires a house for sue as a gambling house;
the object of the contract is to run a gambling house. The object is said
to be unlawful if-

It is forbidden by law,
It is of such nature that if permitted it would defeat the provision of any
law, (liquor license)
It is fraudulent.
Certainity of performance
7. Law full consideration; All contracts must be supported by
consideration. Gratuitous promises are not enforceable by law.
An agreement made for an unlawful consideration is void.
Lawful consideration requires both,
(a)the presence of consideration which may be past, present or
future and
(b)the lawfulness of consideration.

8. Certainty and possibility of performance; the terms of the

contract must be precise and certain. It cannot be left vague. A
contract may be void on the grounds of uncertainty.
EX. A agress to sell to B a hundred tons of oil. There is nothing
whatever to show what kind of oil was intended. The agreement is
void for uncertainty.
9. Agreements not declared to be void; the agreement must not
have been declared to be expressly void by law in force in the country.
Agreements mentioned in Sec24-30 have been expressly declared to
be void.
They include agreements in restraint of marriage, agreements in
restraint of legal proceedings, agreements in restraint of trade and
agreements .

10. Legal formalities; an oral contract is a perfectly valid contract,

except in those cases where writing, registration, etc. is required by
some statue. In India, writing is required in cases of sale, mortgage,
lease and gift of immovable property, negotiable instruments,
memorandum and articles of association of a company, etc.
Registration is required in cases of documents. Coming within the
scope of sec 17 of the Registration Act.
EX: Time barred debt a promissory note with inadequate stamps.
Therefore, all the elements mentioned above must be present order
to make a valid contract. If any one of them is absent, the agreement
Agreement not declared to be void
Legal formalities
 Kinds of contracts
Classification of the contracts is done in accordance to formation
validity
performance
1. Voidable Contract: A contract is voidable when one of the
parties to the contract has not exercised his free consent. One
of the essential elements of a formation of a contract for
example, free consent, is absent.

All voidable contracts are those which are induced by coercion

fraud or misrepresentation. The person whose consent is not
freely given may avoid a contract.

It therefore continues to be valid till the party whose consent is

caused by coercion, fraud or misrepresentation choose to avoid
the contract within a reasonable time. Contract then is not
binding on the other party.
Voidable contract
induce 1. Not binding
d Ranganayakamma
vs
Alwarchetty

2. A prevents B from
Performance-Voidab
At the option of B

3. Failure to perform
Specified time-voida
At the option of the
Promisee.
2. Void Contract: A contract which ceases to be enforceable
by law becomes void, when it ceases to be enforceable. For ex:
an agreement with a minor or an agreement without
consideration.

A void contract is a nullity from its inception. No rights accrue

there under.

A contract may also be originally valid when entered into but

subsequently due to change in the events or circumstances, it
may become void. Ex A contract to import goods from foreign
country may subsequently become void when a war breaks out
between the countries.

It should be noted that there cannot be a void contract because

Ceases to be enforceable by law is a void contract

Void contract
Contract initiall
Valid but later
May subsequen
Become void-vo
Contract

Illogical to call a
Void contract
Because it ceas
To be enforceab
So can be called
Void agreement

Agreements contained in Sec 24-30 are expressly stated to be void those i

Of marriage, legal proceedings, trade by wager.
3. Unenforceable Contract: A contract which cannot be
enforced
is an unenforceable contract in court of
law
This may be because of incapability of proof i.e.,
some technical defect
or
where remedy is barred due to lapse
of time

Contract may be carried but in the event of breach of repudiation

of such party the aggrieved party cannot be entitled to legal
remedies.
4. Executed Contract: Where both the parties have performed their
obligation, it is an executed contract.
A sells bun to B
&
B pays for it
It is an executed contract

In some cases even though the contract appears to be completed at

once, its effect may still continue, For ex. When person buys a bun
containing stone and subsequently breaks one of his teeth he has
right to execute damages from seller.

5. Executory Contract:
yet to perform obligations.
Here neither party to the contract has performed his share of the
obligation. In an executory contract both the parties have to perform
their mutual promises and the fact that they have to perform their
parts of the contract does not affect the validity of the contract.
If A agrees to engage B as his servant from the next month it is
executory contract
Contract sometimes may be partly executed and partly
executory
Unenforceable contracts Executed Contract

Executory Contract
6. Express Contract: When the terms of a contract are reduced
in writing or are agreed upon by spoken words at the time of its
formation, the contract is express.

7. Implied Contract:
inferred from acts
or
conduct of parties
or
course of dealings between them.
Where the proposal or the acceptance is made otherwise than in
words it is implied. There is an implied promise when,
A gets into a bus
Takes a cup of tea in a restaurant etc
Upton Rural District Council
vs
Powell
Upton fire brigade happened to put of the fire which Powell did.
Powells farm did not come under free fire service although he
believed that he had. Held he was liable for the service rendered
on an implied promise to pay.
Express and Implied Contra
8. Quasi-Contract: A contract is one which is generally created
intentionally by the parties but Quasi Contract is one which is
created by law. It resembles a contract in the sense that legal
obligation is imposed on a party who is required to perform it.
It rests on the ground that,
A person shall not be allowed to enrich unjustly
at the expense of the other.
Certain relations resemble those created by a contract. Certain
obligations which are not contracts in fact but are so in the
contemplation of law. These are called Quasi-Contracts.
Illustration:
T a tradesman leaves goods at Cs house and by mistake C treats
the goods as his own and C is bound to pay for the goods.

Not contracts in fact but are so in the

Contemplation of law
9. Contingent Contract:
A contingent is one in which
a promise is conditional and
the contract shall be
performed only on the
happening of some future
uncertain event. Promise- conditional
Illustrations: Contract performed only on
A contracts to pay B Rs happening of
10,000, if Bs house is Uncertain event
burnt. This is a contingent
contract.

10. Contracts of Record:

A contract of record is one
which is taken to the
records of a Court, for
example judgment of a
court. Such judgments
create a binding effect
through the authority of the Create binding effect thru auth of cour
11. Specialty Contract: A specialty contract is a contract which
is in writing signed, sealed and delivered by the parties. It is also
called a contract under seal. Consideration is not necessary in a
specialty contract.
12. Simple Contract: A simple
contract s one which is not under seal.
All contracts which are not under seal
are simple contracts. All simple
contracts require consideration. They
may be made by written or spoken
words. Contracts of Record and
Specialty Contracts are also known as
Formal Contracts. The classification of
contracts into Contracts of Record,
Specialty and simple is under the
English Law. Indian Law does not Contracts not under seal but w
recognize contracts without Some consideration
consideration. All contracts must have
consideration in order the valid subject
to exceptions under section 25 of the
Act.

13. Statutory Contract: When all or

some of the terms and conditions of
contract are statutory then the entire
All or some terms are statutory
contract, or that extent as the case
may be, would be regarded as
Distinction between Voidable Contract and Void Contract:

1.A valid agreement has from the very beginning, no legal effects.
It is enforceable at law. A voidable contract is one which one of
the parties may affirm or reject at his option. It is void and
enforceable till it is repudiated or rescinded.
2.The defect in the case of voidable contract is curable and may
be condoned. But, a void agreement is void and its defects are
incurable.
3.In the case of a void agreement, even the third party cannot
acquire any right from person claiming under such contract while
in the case of a voidable contract, a third party can acquire a valid
title from a person claiming under such a contract.
4.Since a void agreement is unenforceable at law, there does not
arise any question of compensation on account of the non-
performance of the agreement. But in case of a voidable
contract, a person is entitled to compensation for loss or damages
suffered by him on account of non-performance of the contract.
5.A voidable contract does not affect the collateral transaction.
But, where the agreement is void on account of illegality of the
object, the collateral transaction will also become void.
ffer and Acceptance
OFFER:

An offer is a proposal by one party to another

to enter into a legally binding agreement with him.

A person is said to make a proposal, when one person signifies to

another his willingness to do or to abstain from doing anything with a
view to obtaining the assent of that to such act or abstinence-Sec
2(a).

The person making the proposal is called the proposer or offeror or

promisor and the person to whom the proposal is made is called the
offeree, proposee, promisee.
Eg. A offers to sell his motorcycle to B for 3000/- B agrees to pay A
3000/- for the motor cycle. Here A is called offeror or promisor and B
the offeree or promise.

 How an offer is made;

An offer may be either express or implied from the conduct of

the parties. An Express Offer is one which may be made by
words spoken or written. Thus, where A offers to sell his pen to B
for 10/- it is an express offer.

An Implied Offer is one which may be gathered from the

conduct of the party or the circumstances of the case. Thus,
stepping into a local bus & consuming eatables at a self service
restaurant, both create implied promises to pay for the benefits
enjoyed.

To Whom an Offer can be Made:-

An offer may be specific or general. Where an offer is made to a

definite person or body of persons, it is called a Specific Offer. A
Specific offer can usually be accepted only by the person or
persons to whom it is made.
Points decided-
1.An offer may be made to the world at large in general.
2.A contract is made only with that person who comes
forward and performs the conditions of the offer.
3.In a general offer, the communication of acceptance is not
necessary.
Essentials of a valid offer;
1.It must be capable of creating legal relations
2.Offer should be made with a view to obtain acceptance
3. It must be certain, definite and not vague.
4.Offer may be expressed or implied.
5.Offer must be communicated
6.Special terms or conditions in an offer must also be
communicated.
7.Invitation to offer is not an offer.
8.Cross offers counter offers.
9.It should not contain a term, the non-compliance of which would
amount to acceptance.
7.Lapse of an offer.
1. Offer must be capable of creating legal relations: The
offeror must intend the creation of legal relations. He must intend
that if his offer is accepted, a legally binding agreement shall
result.
Eg. A accepts an invitation to dine at Bs place on a certain date
but fails to turn up on the appointed date. A cannot be sued for
breach of a contract, because in contracts regulating social or
domestic arrangements, the presumption is that parties do not
intend legal consequences to follow form the breach of a contract.
2. Offer must be made with a view to obtaining get the
assent (acceptance) of the other party and it should be
distinguished by mere expression of intention:- An offer
must be distinguished from mere expression of intention. An offer
or proposal to do or abstain from doing anything must make with a
view to obtaining the assent of the other party to whom offer is
made. Mere expression of the intention is not an offer.

CASE: HARRIES (vs.) NICKERSON:

An auctioneer advertised in the newspaper that sale of office
furniture will be held. A broker came from a distant place to attend
that auction but all the furniture was withdrawn. The broker
thereupon sued the auctioneer for loss of time and expenses, Held
a declaration of intention to do a thing did not create a binding
contract with those who acted upon it, so that the broker could not
recover.
3. Offer must be certain, definite and not vague: No contract
can come into existence if the terms of the offer are vague and
indefinite. To constitute a valid agreement, it is essential that the
proposal must be so certain, that the rights and obligations of the
parties arising out of the contract can be exactly fixed.
The Leading Case-Taylor vs. porting ton (1855)
A agreed to take Bs house on rent for three years at the rent of 85
per annum provided the house was put into through repair and the
drawing rooms were decorated to present style.
It is a vague term, because the term present style may mean one
thing to A and another to B.Hence,the agreement was void on the
ground that the terms of offer were vague and uncertain.
Point decided is when the terms of an offer are uncertain and vague
agreement is void.
4. Offer may be expressed or implied.
A proposal can be made either in words spoken or in words written.
Such proposal is called an express proposal. It can also made by
the action of the parties. Such proposal is known as implied
proposal.
5. Offer must be communicated to the offeree; There can be
no offer by a person to himself. It must always be communicated to
the offeree. If there is no communication of an offer, there is no
acceptance resulting in the contract.

The Leading Case Lalman Shukla (vs). Gauri Dutt -1913

D sent his servant P to trace his missing nephew in the meantime

announced a reward for providing information about the missing
boy. P, in ignorance of the announcement traced the boy and
informed D. P later on came to know of the reward and he claimed
it. His claim was dismissed on the ground that he was ignorant of
the offer. It was further held that it was the duty of the servant to
search for the boy.
Point decided is offer must be communicated and there can be no
acceptance unless there is knowledge of the offer.
6. Special terms or conditions in an offer must also be
communicated:
The offeror is free to lay down any terms and conditions in his
offer,and if the other party accepts the offer then he would be
bound by those terms and conditions.The important point is that
there are some special terms and conditions they should also be
duly communicated.
CASE-PARKER (vs.) SOUTH EASTERN RAILWAY CO (1877)
P deposited his bag at the cloak room at a railway station and
received a ticket for containing on its face the words see back.
On the back of the ticket there was a condition that, the
company will not be responsible for any package exceeding the
value of to 10.A notice to the same effect was hung up in the
cloak room.Ps bag was lost and he claimed the actual value of
the lost bag,24,10s.The claim was negative and done only10
was awarded. That P did read the conditions was his fault as the
railway company had done what was reasonably expected of it.
7. An invitation to offer is not an offer: An offer must be
distinguished from an invitation to treat or as it is sometimes called
an invitation to offer. In the case of an invitation to offer, there is no
intention on the part of the person sending out the invitation to
certain the assent of the other person to such invitation. His aim is
to merely circulate information if his readiness to negotiate business
with anybody, who, on such information comes to him. Such
invitations are not offers in the eyes of law and do not become
promises on acceptance.
The display of goods in a shop with price tags attached is an
invitation to offer. Catalogues containing description of goods held
for sale at the prices quoted are not offers. A price list is not an offer
to sell the goods at the listed prices. It is an attempt to induce offers
and not an offer in itself. The display of goods on the shelves of the
self service shop is merely an invitation to offer, and the customer
makes an offer to buy when he carries the goods to the cashier.
The leading case Harvey Vs Facey-1893
Harvey sent a telegram to facie stating will you sell us the estate of
Bumper Hall pen for sum of 900 against. Harvey sent another
telegram to facie stating we agree to buy Bumper Hall pan for sum
of 900 asked by you. Please send us your title deeds in order that
8. Cross offers counter offers:

Cross offers: Identical offers made by person in ignorance of each

other are known as cross offers. They do not make a contract.
EX: H wrote to T offering to sell 800 tons of iron at a specified price.
On the same day T wrote to H offering to buy 800 tons for the same
price. This is a cross offer and hence does not constitute a contract.

Counter Offer: - A counter offer is a rejection of the original offer and

making a new offer. This new offer is a counter offer. A person who
makes a counter offer and subsequently changes his mind and wishes
to accept the original offer cannot do so as the first offer lapses and
he cannot treat it as still offer.
The leading case: Hyde Vs Wrench -1840
A offered to sell a farm for 1,000. X said he would give 950.A
refused and X then said he would give 1, 000, and when he decided
to his original offer tried to obtain specific performance. Held there
was no contract as Xs offer to pay 950 was a refusal of the offer and
a counter-offer; and that when he later said he would pay 1,000,he
was making a new offer, which would have to be accepted by A before
9. Offer should not contain a term the non-compliance
(with act reply) of which would amount to acceptance:-
one cannot say while making the offer that if the offer is not
accepted before a certain date, it will be presumed to have been
accepted.
Ex. A writes to B, I offer to sell my house for 40,000/-. It I do not
receive a reply by Monday next, I shall assume that you have
accepted the offer. There will be no contract if b does not reply.

10. Lapse of an offer: - An offer lapses:

If either offeror or offeree dies before acceptance
If it is not accepted within 1) the specified time, or 2) a
reasonable time, if no time is prescribed. What is a reasonable
time depends on the circumstances.

Revocation of offer:
Q. When does an offer come to an end?
A.Revocation (come back) of offer arises only if there has been no
acceptance of the offer
B. by the time of revocation. An offer may come to an end by
revocation or lapse or rejection.
According to sec6 of the Act a proposal may be revoked in any of the
following ways:-
Modes of revocation of offer:-
By notice of revocation.
By lapse of time.
By non-fulfillment of condition precedent
By death or insanity.
By counter offer.
By the non-acceptance of the offer according to the prescribed or
usual made.
By subsequent illegality
 A.By notice of revocation: offer may be revoked by a
communication of a notice of revocation by the ofference to
the other party. An offer made in writing may be revoked by
words of mouth. The notice of revocation may not always be
express. A notice of revocation to be effective must be
communicated to the offeree.

B.By lapse of time: A proposal will come to an end by the

lapse of time prescribed in such proposal for its acceptance or,
if no time is so prescribed, by the lapse if reasonable le time.
What is a reasonable time is a question of fact depending upon
the circumstances of each case.

C.By non-fullment of condition precedent; A proposal is

revoked when the acceptor fails to fulfill a conditions
precedent to the acceptance of the proposal. Thus X may offer
to sell certain goods to Y on a condition that Y pays a certain
amount before a certain date. The proposal is revoked if Y fails
to pay the required amount within given time.
 D.By death or insanity; A proposal is revoked by the death or
insanity of the proposer if the fact of this death or insanity comes
to the knowledge of the acceptor before acceptance.

E.By counter offer; An offer comes to an end when the offeree

makes a counter offer. Where an offer is accepted with some
modification in the terms of the offer or with some other
condition not forming part of the offer, such qualified acceptance
amounts to a counter offer. An offer once rejected cannot be
revived.
Ex. An offer to sell his house to B for 1000/- B replies offering
to pay 950/- A refuses subsequently, B writes accepting the
original offer has lapsed.

F.By the non-acceptance of the offer according to the

prescribed or usual mode: The offer will also stand revoked if it
has not been accepted according to the mode prescribed.

 G.By subsequent illegality: An offer lapses if it becomes

illegal after it is made and before it is accepted. Thus, where
an offer is made to sell to bag of wheat for 2500/- and before
it is accepted, a law prohibiting the sale of wheat by private
individuals is enacted; the offer comes to an end.

 Acceptance

When the person to whom the proposal is made signifies his

assent, it is an acceptance of the proposal. Acceptance may be
expressed or implied (spoken words or goes to hotel and eats
some food impliedly accepts)

Essentials of a Valid acceptance:

1.Acceptance must be absolute and
unconditional.
case law : Hyde Vs Wrench ( H offered to sell his property to W
$1000.W in reply made an offer of $ 950)
2.Acceptance must be communicated to the
offeror:
A tells B that he intends to marry C but does not
communicate C about his intention, There is no contract as the
acceptance is not communicated to C
CONSIDERATION
Introduction / Meaning:

Consideration is a technical term used in the sense of quid pro quo i.e.,
something in return.
Whenever a party to an agreement promises to something,
he must get something in return.
This something in return is called consideration.

An agreement without consideration, subject to certain exceptions is void.

Consideration may not be always in the form of money, it may take form of
money, goods, services, a promise to marry etc.

Definition: Sec2 (d)

When at the desire of the promisor,
the promisee or any other person
has done or abstained from doing something
it may be called consideration.
If we analyse the definition consideration may be , doing of something

Essentials of valid consideration:

1.It must more at the desire of the promisor
2.It may move from the promisse or any other person
3.It may be past, present or future.
4.It need not be adequate
5.It must be real
6.It must be lawful
7.It must be something which the promisor is not
already bound to do.
8. There should be one consideration for one
agreement
9. Consideration is very essential in every contract
10. Consideration may be any form:
1. It must move at the desire of the promisor: the first essential
characteristic of consideration is that the act or abstinence must have been
done at the desire of the promisor. It follows that any act performed at the
desire of a third party, cannot be a consideration. The desire of the promisor
may be express or impled.
CASE: DURGA PRASAD (VS) BALDEO (1880)
B spent some money on the improvement of a market at the desire of the
collector of the district.In consideration of this D who was using the market
promised to pay some money to B.Held,the agreement was void being
without consideration as it had not moved at the desire of D.
2. It may move from the promissee or any other person: the second
important feature of the definition of consideration in Sec2 (d) is that the act
which is to constitute a consideration may be done by the promise or any
other person. It means that as long as there is a consideration for a promise,
it is immaterial who has given it. It may have move from the promise, or if
the promisor has no objection, form any other person.
The leading case Chinnaya(vs) Ramaya (1982)
An old lady, by a deed of gift, made over certain property to her daughter D,
under the direction that she should pay her aunt (sister of the old lady), a
certain sum of money annually. The same day D entered into an agreement
with P to pay her the agreed amount.
Later, D refused to pay the amount on the plea that no consideration had
3. Consideration may be past present or future: consideration may
be past, present or future -
. Past consideration: when the consideration for a present promise was
given before the date of the promise, it is said to be past consideration.
Present consideration: when the consideration for a promise is given
simultaneously with the promise, it is called present consideration.
Future consideration; A future or executary consideration is a promise to
do or give something in return in future for the promise then made. It is
also called a promise for the promise.

4. It need not be adequate; It is no where laid down that

consideration should be adequate to the promise. What is required is
that there must be some consideration for the promise. Adequacy is for
the parties to decide at the time of making the agreement. Inadequacy
of consideration is no ground for refusing the performance of the
promise, unless it is evidence of fraud. It should be of some value in the
eyes of law. Even a smallest consideration is sufficient provided it has
some value. If a man gets what he contracted for the court will not
inquire whether it was an equivalent to the promise which he gave in
return.
EX: A agrees to sell his watch worth Rs.1000 to B for Rs.10.The
5. Consideration must be real: Though consideration need not be
adequate, if it must be real and not illusory. Thus, a promise to do that which
a person is by law bound to do, does not amount to consideration.
Consideration has also to be competent. If it is physically impossible, vague
do legally impossible, the contract cannot be enforced. Thus, a promise by a
man to make two parallel lines meet is no good consideration.
A.Physical impossibility:
EX: P promises to G to run at a speed of 200 kilometers an hour if Q pays him
Rs.5000. Ps promise is physical impossible of performance
B.Legal impossibility:
X who owes Rs.1000 to Y promises to pay Rs.200 to Z,the servant of Y,who in
return promises to discharge X from the debt. This is legally impossible
because Z cannot give discharge for a debt due to Y, his master.
C.Uncertain consideration:
Ex: A engages B for doing a certain work and promises to pay a
reasonablesum.There is no recognized method of ascertaining the
reasonable remuneration. The promise is uncertain and hence unenforceable
.D.Illusory consideration:
EX: Two of the crew of a ship deserted it half way through a voyage. The
captain thereby promised to divide the salary of the deserters among the rest
of the crew if they worked the vessel home.Held; they could not recover the
6. Consideration must be lawful; the consideration for an
agreement must be lawful. An agreement is void, if it is based on
unlawful consideration. The consideration of an agreement is lawful
unless:

It is forbidden by law;
It is of such a nature that if permitted; it would defeat the provision of
any law;
It is fraudulent
Involves or implies injury to the person or property of another
The court regards it as immoral opposed to public policy.

7. It must be something which the promissor is not already

bound to do: Consideration must be something more than what the
promise is already bound to do. In other words a promise to do what
one is already bound to do, either by general law or under an existing
contract, is not a good consideration for a new promise.

8. There should be one consideration for one agreement.

Every agreement should have one consideration. Demanding extra
consideration or second consideration from the same agreement
becomes invalid. Similarly one agreement should be based on one
codsideration.Two or more agreements cannot be based on a
single consideration.
CASE: RAMACHANDRA CHINTAMANI (VS) KALU RAJU(1877).
In this case, an Advocate agreed to complete a case for a
consideration of Rs.1000.Later he demanded extra consideration
for obtaining the judgment in a short period for which the client
agree but the court of law held that the second consideration
cannot be claimed.
9. Consideration is very essential in every contract:
Consideration is a very important feature in every contract. A
promise cannot become an agreement without consideration and
an agreement cannot become a contract without a lawful
consideration.

10. Consideration may be any form:

Consideration is denoted as something in the legal definition.
Later it is explained as an act or abstinence or a
promise.However,it may be any form such as payment of cash,
delivery of goods, doing something, not doing something, making a
profit, bearing a loss, rendering services,.
Q) A stranger to consideration can sue, but a stranger to
contract cannot sue comment?

A) Stranger to a Contract:
It is a general law of contract that a person who is not a party of
the contract cannot sue on it. This means that unless there is a
privity of contract, a party cannot sue on a contract.
Privity of contract means the relationship
existing between the parties to a contract.
It means that no one but, the parties to a contract can be bound
by it or be entitled under it. Therefore, it is clear that a stranger to
a contract cannot sue for the contract.
Dunlop Pneumatic Tyre Co. Vs Selfridges & Co. 1915
Point decided is: a contract cannot be enforced by a person who is
not a party to it, even though it is made for his benefit.

S bought tyres from the dunlop rubber co and sold them to D a

sub-dealer who agreed with S not to sell these tyres below
Dunlops list price and to pay the Dunlop co 5 pounds as damages
on every tyre undersold. D sold two tyres at less the list price,
thereupon the company sued him for breach. Held the Dunlop co
could not maintain the suit as it was stranger to the contract.

Stranger to consideration:

A stranger to a contract cannot sue on it, but a stranger to

consideration can sue for consideration. If the contract is made
for the benefit of the stranger as if the consideration is falling on
the stranger.
A stranger can sue for consideration in the following cases:
1. In case of trust, the beneficiary may enforce the
contract;
A person called beneficiary in whose favour the trust or other
interest on specific immovable property has been created
can enforce it even though he is not a party to the contract.
Case; Amirullah vs. Central Govt. 1959
A sent an ensured parcel to B by post. The parcel was misplaced
and did not reach the addressee. B filed a suit for
compensation for non-delivery of the parcel.
Point decided; it was held that B was entitled to have
compensation as a trust had been created in favour of the
addressee.

2. Where the provision is made in a marriage settlement.

Where an agreement is made in a connection with marriage and
a provision is made for the benefit of a person, he may take
advantage of that agreement, although he is not a party to it.
Case; Khwaja Mohd Khan vs. Hussaini Begum1910:
D agreed with ps father that he would pay to P, 500/- p.m. as
kharh-i-pandon, if P marries ds son. The allowance was stopped
sometime after the celebration of marriage. P sued D, her father-
in-law, for the arrears of allowance.
Point decided; it was held that P could recover the money, even
though she was not a party to the contract.

Case Daropti vs. Jaspat Rai 1905

Bs wife left him because of his cruelty. He then executed an
agreement with her father promising to treat her properly, or if
he is failed to do so, to pay her monthly maintenance and to
provide her with dwelling subsequently, she was again treated
by D and also driven out.
Point decided; she was entitled to enforce the promise made by
D to her father.
3. Where a provision is made in a partition or family
arrangement for maintenance, or marriage expenses of female
members, such members, though not parties to the agreement,
can sue, for the agreement consideration.

Case Shuppuammal vs. Subramanyam 1910

Two brothers, in a partition deed, agreed to pay 300/- in equal
shares to their mother for maintenance. The brothers
subsequently refused to pay the amount.
Point decided; on a suit, it was held that, the mother could enforce
the promise, even though she was a stranger to the contract.
4. In case of transfer of immovable property
the purchaser of the land
with notice that the owner of the land
is bound by certain conditions created by the
agreement
Affecting the land shall be bound by them although he was not a
party to the original agreement which contains the conditions. (Tulk
vs Moxhay)

5. Acknowledgement or estoppel:
Where the promisor by his conduct acknowledges
or otherwise constitutes himself as an agent of the third
party
a binding obligation shall be incurred by him towards the
third party.
A receives some money from T to be paid to P. A admits of this
receipt to P. P can recover the amount from A who shall be
regarded as the agent of P and has given his acknowledgement.

6. Contract entered into through an agent can be enforced by

the principal
Q) No consideration- No contract explain and give
exceptions
When a party to an agreement promises to do something, he
must get something in return. This Something in return is
called consideration.
Note; Introduction and Definition same as for consideration.
No Consideration No Contract Importance of consideration:
Consideration is the foundation of every contract. It is the sign
and symbol of every bargain. A promise without consideration is
null and void. It is called a naked promise or a Nudun-Pactum.
According to the meaning and definition of consideration,
whenever a party promises to do something, he should get
something in return, where this something in return can be called
as consideration.
Therefore, from the above illustrations, it is clear that without
consideration, there wont be any contract. So, one can say that
No consideration-No contract.
Exceptions to principle No consideration-No
contract- Exceptions (Sec 25):
Every agreement, to be enforceable at law, must be
supported by void consideration. An agreement made
without consideration is void and enforceable, except in
certain cases. Sec 25 specifies the cases where an
agreement even though made without consideration will
be valid. They are as follows.
1. Natural Love and affection Sec 25(1): an agreement made
without consideration will be valid if it is in writing and registered
and is made on account of natural love and affection between
parties standing in a near relation to each other.

An agreement without consideration will be valid provided:

a)It is expressed in writing
b)It is registered under the law for the time-being.
c)It is made on account of natural love and affection.
d)It is between the parties standing in a near relation to each
other.

Ex. A by registered agreement, on account of love and affection,

for his brother B, undertook to discharge a debt due by B to C.
actually, A did not fulfill the promise. So, B paid the debt. It was
held that B couldvs.
Venkatswamy recover
Ranga theSwamy
amount1903
of debt from A.
Point decided; agreement made on account of natural love and
affection. But not supported by consideration is valid.
. Completed Gifts; (Explanation 1
to Sec.25)
no consideration No contracts shall
not affect validity on any gifts,
actually made between the donor and
the donee.
Thus, if a person gives certain
properties to another according to the
provisions of the Transfer of property
Act, he cannot subsequently demand
the property back, on the ground that
there was no consideration.
2. Compensation for Voluntary Services rendered (Sec 25(2):
A promise to compensate, wholly or in part,
For a person who has already voluntarily done something for promisor
Is binding even though without consideration.
In simple words a promise to pay for the past voluntary
service is binding.
The promise must be in existence at the time when the art was done.
Ex; A says to B, at the risk of your life you saved me from a serious
accident. I promise to pay you Rs.1000 and A has to bind upon it.
3. Time-barred debt Sec 25 (3); A promise to pay a time-barred
debt is also enforceable. But, the promise must be in writing and
must be signed by the promisor or his agent. This promise may be
to pay the whole or part of the debt.
Ex; D owes C, Rs. 1000/- but the debt is barred by the limitation act.
D signs a written promise to pay C Rs.500 on account of the debt.
This is a contract.
(A debt is barred by limitation if it remains unpaid or unclaimed for a
period of three years.)


4. Agency; it is given in sec 185 which says that no

consideration is needed to create an agency.
Ex. A father choosing his minor son as his agent without
paying commission or salary is a valid agency.
 minor
Person with unsound mind

Capacity of
Parties
Disqualified from contracting in any
Capacity of Parties Minor

Q) Parties to a contract must be competent to contract-

explain.
(OR)
Q) Discuss the provisions of law relating to contract by
minor?
A) Capacity means competence of the parties to enter into a valid
contract. One of the essential conditions which make an agreement
as a contract is that all the parties to it must have capacity to enter
into a contract.
Sec 11 of the contract act deals with the competence of parties and
provides that every person is competent to contract who is of the age
of majority according to the law and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.

According to sec 11, the following persons are incompetent to

contract
Minor
Persons of unsound mind
Persons disqualified by any law to which they are subject.

A minor has an immature mind and cannot think what is good or bad
for him. Minors are often exploited and their properties stolen. As such,
he must be protected by law from any exploitation or ill-design.

Rules regarding minors agreement;

1. Agreement void-ab-inito
2. No ratification
3. Minor can be a promise or beneficiary.
4. No estoppel against minor
5. No specific performance.
6. Liability for mistake
7. No insolvency.
8. Partnership.
9. Minor can be an agent.
10. Minor cannot bind parent or guardian.
11. Joint contract by minor and adult.
12. Liability for necessaries.
1. Agreement void-ab-intio; according to sec11, it made perfectly
clear that a minor is not competent to contract and that a contract by
a minor is void-ab-inito.
Mohri Bibi vs. Dharmodas Ghose 1903:
Point decided; an agreement with a minor is absolutely void

Facts of the case; A, a minor, borrowed 20000/- from B and as a

security for the same, executed a mortgage in his favour. He became
a major a few months later and filed a suit for the declaration that the
mortgage executed by him during his minority was void & should be
cancelled.
It was held that a mortgage by a minor was void & B was not entitled
to repayment of money.

2. No Ratification; an agreement with minor is completely void. A

minor cannot ratify the agreement even an attaining majority because
a void agreement cannot be ratified. A person, who is not competent
to authorize an act, cannot give it validity y ratifying it.
Thus, where a minor borrowed a sum of money by executing a single
pronote for it and after attaining majority, executed a second pronote
in respect of the original loan plus interest thereon, a suit upon the
3. Minor can be a promisee or a beneficiary; in a contract if the
beneficial is a minor, it can be enforced by law. There is no restriction on a
minor from being a beneficiary like being a payee or a promise in a contract.
Thus, a minor is capable of purchasing immovable property and he may sue
to recover the possession of the property upon tender of the purchase
money. Similarly, a minor, in whose favour, a promissory note has been
executed can enforce it.
The General American Insurance Co. Ltd. vs. Madan Lal Sonu Lal.
Facts of the case- X a minor insured his goods with an insurance Co. the
goods were damaged. X filed a suit for claim. The Insurance Co. took plea
that the person on whose behalf the goods were insured was a minor. The
court rejected the plea and allowed the minor to recover the insurance
money.
4 No estoppel against the minor (He can always plead minority):
Where a minor, by misrepresenting his age, has induced the other party to
enter into a contract with him, he cannot be made liable on the contract.
There can be no estoppel against a minor. In other words, a minor is not
stopped from pleading his infancy in order to avoid a contract.
S a minor by fraudenlently representing himself to be of full age,
induced L to lend him 400 pounds. He refused to repay and L sued him for
money. Held the contract was void and S was not liable to repay the amount
(Leslie vs Shiell)
Facts of the case; an infant represents fraudulently that he is of age and
there by induces another to enter into a contract with him. Then, in an action
founded on the contract, the infant is not estoppel from setting up infancy.
The court may, however, require the minor to compensate the other party on
the ground of equity. This is based on the rule that a minor can have on the
ground of equity.

Fraudulent misrepresentation as to age by an infant will operate against him

in certain cases. If a minor obtains property or goods by misrepresenting his
age, he can be compelled to restore it (Where as the law gives protection to
the minor it does not give liberty to cheat men).
5.No specific performance; a minors contract being absolutely void,
there can be no question of the specific performance of such contract.
However a contract entered into on his behalf by his
parent/guardian it can be specifically enforced by or against the minor
provided the contract is (a) within the scope of the authority of the
parent/guardian and (b) for the benefit of the minor.

6. Liability for torts; a minor is liable in tort. Thus, where a minor

borrowed a horse for riding only, he was held liable when he lent the
horse to one of his friends, who jumped and killed the horse. Similarly,
a minor was held liable for his failure to return certain instruments
which he had hired and then passed on to a friend.
But, a minor cannot be made liable for a breach of contract by
framing the action on tort. You cannot convert a contract into a tort to
enable you to sue on infant.

7. No insolvency: As the minor is incapable of contracting debts, a

minor cannot be declared insolvent even though there are dues
payable from the properties of the minor.

8. Partnership; A minor being incompetent to contract cannot be a

partner in a partnership firm. But, under Sec 30 of the Indian
partnership Act, he can be admitted to the benefits of partnership.
9. Minor can be an agent; A minor can act as an agent. But, he will
not be liable to his principal for his act. A minor can draw deliver and
endorse negotiable instruments without himself being liable.

10. Parent/Guardian is not liable for the contract entered into

by the Minor
In the absence of authority, express or implied, an infant is not capable
of binding his parent or guardian, even for necessaries.

11. Joint contract by minor and adult; in such a case, the adult will
be liable on the contract, but not the minor.

12.Liability for necessaries; the case of necessaries supplied to a

minor or to any person whom such minor is legally bound to support is
governed by sec 68 of the ICA. A claim for necessaries supplied to a
minor is enforceable at law.
But, a minor is not liable for any price that he may promise and
never for more than the value of necessaries. There may promise and
never for more than the value of necessaries. There is no personal
liability of the minor, but only his property is liable. A minor is also liable
Persons disqualified from contracting by any other law; it
refers to statutory disqualifications imposed on certain persons in
respect of their capacity to contract;
* Alien enemies
* Foreign sovereigns and ambassadors
* Insolvents
* Convict
* Corporations
* Married Women
* Professional persons

FREE CONSENT
Consent: It means acquiescence or act of assenting to an offer.
Section 31:Two or more persons are said to consent when they agree
upon the same thong in the same sense.
Consent is said to be free when it is not caused by
1. Coercion
2. Undue influence.
3. Fraud.
4. Misrepresenation
5. Mistake.

1. COERCION :( section- 15):

Coercion means forcibly compelling a person to enter into a contract, the
consent of the party is obtained by use of force or under a threat. The act
defines coercion as:
The committing or treating to commit, any act forbidden by the Indian
penal code, OR
The unlawful detaining or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of causing any person
to enter into an agreement.
1. Committing any act forbidden by the IPC:
The IPC has forbidden the Indian citizens from committing a number
of offences, like murder, suicide, kidnapping, unlawful detentions,
stopping a dead body from cremation. So when a person obtained of
a party to a contract by committing any of these acts, the consent is
said to have been by coercion. Such agreement becomes voidable.
CASE: RANGANAYAKAMMA (VS) ALWER CHETTY (1889).
A young girl of 13 years was forced to adopt a boy to her husband
who had just died by the relatives of the husband who prevented the
removal of his body for cremation until she consented. Consequently
the adoption of the boy on the ground of coercion became voidable
because it was not done with free consent.

2. Threatening to commit any act forbidden by IPC:

If a person obtains the consent of another to a contract by
threatening him that an act forbidden by the IPC would be
committed, it also becomes equivalent to coercion, such agreement
can also be avoided on the ground of coercion.
CASE: AMIRAJU (VS) SESHAMMA (1917):
A person held out a threat of committing suicide to his wife and son
if they did not execute a release in favour of his brother in respect of
3. Unlawful detaining or threatening to detain any property.
When a person obtains the consent of another to a contract by
detaining the property of any other person unlawfully, it will also
become coercion.
CASE; MUTHIA (VS) MUTHU KARUPPA (1927);
An agent refused to hand over the account books of a business to the
new agent unless the principal released him from all liabilities. The
principal had to give a release deed as demanded.Held; the release
deed was given under coercion and was voidable at the option of the
principal.

4. Coercion may be committed anywhere in the world:

The IPC applies to Indian land only. Any offence committed outside the
Indian boundaries is not punishable under IPC.But coercion committed
either in India or outside India can make the agreement voidable if a
suit is filed in India.

5. Coercion may be direct or indirect:

Coercion may be committed by one party of the contract against the
other party or through a third party.Therefore, it can be director
2. Undue influence (section -16)

Undue influence is the improper use of any power possessed

over the mind of the other contracting party. It is also referred
to as EQUITABLE FRAUD. It creates a mental or moral fear as
against physical fear created by coercion.

ESSENTIALS:
1. The relation subsisting between the parties should be such
that one of them is in a position to dominant the will of the
other, and
2. The dominant party should have used that position to obtain
an unfair advantage over the other.
PRESUMPTIONS:
1. Where he holds a real or apparent authority over the other.
2. Where he stands in a fiduciary relation (a position of active
confidence)to the other.
3. Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness or mental
distress or bodily distress.
Thus, the following relationships are said to raise a presumption of
undue influence.
1. Parent and child.
2. Doctor and patient.
3. Lawyer and client
4. Guardian and ward.
5. Trustee and beneficiary.
Ex:A having advanced money to his son,B,during his minority, obtains
upon Bs coming of age, by misuse of parental influence, a bond from B
for a greater amount than the sum due in respect of the advance. A
employs undue influence.
CASE: RANEE ANNAPURNI (VS) SWAMINATH (1910).
A poor Hindu widow was persuaded by a money-lender to agree to
pay 100 percent rate of interest on money lent by him to her. She
needed the money to establish her right to maintenance.Held, it
was a case of undue influence and the court reduced the rate of
interest.
The following conditions are to be satisfied to prove that a consent
in a contract was obtained by undue influence.
1. Existence of previous relationship.
2. One party standing in dominating position.
3. Taking undue advantage.
4. Agreement appearing to be unreasonable.
5. Agreements with pardanashin women.

3. FRAUD (section-17):
Fraud means and includes any of the following acts committed by a
party to a contract.
1. The suggestion, as to a fact, of that which is not true, by one who
does not believe it to be true.
2. The active concealment of a fact by one having knowledge or belief
of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive
5. Any such act or omission as the law specially declares to be
fraudulent.
Therefore, the following acts are considered as fraudulent acts under
the law of contracts.

1. False suggestion:
When a person gives untrue statement about the subject matter of the
contract knowing that his statement is untrue and obtains consent of
other party, the consent can be said to have been obtained by fraud.
Ex: A person quoted the age of his son as 24 years while entering into a
marriage agreement where as the age was more than 40
years.Therefore.the brides father filed a suit to avoid the agreements
on the ground of fraud. The court of law allowed it.

2. Active concealment of facts:

When a person obtains the consent of another to a contract by hiding
some important facts about the subject matter, which are very essential
for giving consent, it also become fraud.

3. A promise made without any intention of performing it:

When a person obtains consent of another person to an agreement
promising to do something where as he does not have any intention to
do it, it also to be fraud.
Ex:An English merchant promised his personal secretary, an Indian lady
that he would marry her. Later she came to know that he was already
4. Silence is not a fraud:
Mere silence of a person regarding facts of a contract will not become
fraud except in the following two circumstances.
1. When the silence is equivalent to speech, which is equivalent to
fraud.
2. When it was the duty of the person to speak out but he did not do
so.
EX; A was selling a mad horse in a village market and his son B came
to buy the horse.It becomes the duty of A to disclose the defect of the
horse to B to whom he stands in a fiduciary relation. If he does not
speak out, it becomes fraud.

5. Any act specially declared as fraud:

Various laws in India have declared different acts as fraudulent, If a
person does any one of such acts, to obtain consent of a party to a
contract, it becomes fraud such as:
* Issue of shares by directors of a company without issuing
prospectus.
* Selling immovable property without disclosing all the facts about the
property.
* Taking up a life insurance policy hiding any information about health
of the insured.
Entering into marriage agreements, hiding vital facts about the bride
MISREPRESENTATION (section-18):
It means misstatement of a fact material to the contract. It is a false
representation made innocently, before or at the time of the
contract, without any intention of deceiving the other party. Consent
to an agreements obtained by misrepresentation is not real and free.

Misrepresentation means and include;

1. When a person positively asserts that a fact is true when his
information does not warrant it to be so, though the believes it to be
true.
2. When there is any breach of duty by a person which brings an
advantage to the person committing it by misleading another to his
prejudice.
3. When a party causes, however innocently, the other party to the
agreement to make a mistake as to the substance of the thing which
is the subject of the agreements.

REQUIREMENTS OF MISREPRESNTATION:
1. It must be a representation of a material fact
2. It must be made before the conclusion of the contract with a view
to inducing the other party to enter into the contract.
3. It must be made with the intention that it should be acted upon by
the person to whom it is addressed.
4. It must actually have been acted upon and must have induced the
contract.
5. It must be wrong but the person who made it honestly believed it
to be true.
6. It need not be made directly to the plaintiff.

EX: A told his wife within the hearing of their daughter that the
bridegroom proposed for her was a young man. The bridegroom,
however,was over 60 years. The daughter gave her consent to marry
him believing the statement by her father.Held,the consent was
vitiated by misrepresentation and fraud>

Mistake
The term mistake is used in law of contract to mean-improper
understanding about the agreement. When an agreement is made
with a mistake regarding terms and conditions of agreement, there
will be no consent between the parties. So the agreement becomes
totally void. The mistake can be reclassified into various types as
follows.
I.MISTAKE OF LAW
A. Indian law.
B.Foregin law
II.MISTAKE OF FACT
A. Bilateral mistake. Unilateral
Mistake
1. Subject matter 1. Mistake as to
the Identity of
a.Existance. person
contracted with
b.Identity. (A selling car to
B who falsely
represented
him as Hutch)
Unilateral mistake:
If only one party commits a mistake it is unilateral mistake
According to Sec.22 of the Act contract is not voidable
So unilateral mistake cannot be taken as a defense in avoiding the cont
Unless Mistake is brought about by fraud or misrepresentation of the oth

A unilateral mistake cannot be allowed as a defense in avoiding a contra

However in the following cases, even though there is a unilateral mistak
Agreement is void.

1.MISTAKE AS TO THE IDENTITY OF THE PERSON CONTRACTED WITH:

2. MISTAKE AS TO THE NATURE OF CONTRACT.
1.MISTAKE AS TO THE IDENTITY OF THE PERSON CONTRACTED WITH:
It is a fundamental rule of law that,

if one of the parties represents himself to be some person other than

he really is
There is a mistake as to the identity of person contracted with

Ex: A advertised his car for sale and B who falsely called himself
Hutchinson agreed to buy the car. A on proof of false address agreed to
accept cheque which was subsequently dishonoured.
The car was subsequently sold to L by B. Held there was no contract
between A and B as A intended to enter into contract only with
Hutchinson and as B has no title of car he could not sell it to L (INGRAM
vs LITTLE)
MISTAKE AS TO THE NATURE OF CONTRACT:
If a person enters into contract in a mistaken belief that he is sign
Document of different class and character altogether there is mistake as t
Nature of contract and contract is void.

In this case he can successfully plead non est factum (it is not his deed i.e
document)

Ex: An old man of poor sight endorsed a bill of exchange thinking that it w
Guarantee. Held there was no contract on the ground that,
mind of signer
did not accompany the signature.\
(FOSTER VS MACKINNON)
 BILATERAL MISTAKE
Where both the parties to an agreement are under mistake
As to the matter of fact essential to the agreement
There is bilateral mistake.

In such case the contract is void. According to Section 20. the following c
Are to be fulfilled
1. Mistake should be mutual
2. Mistake is related to the matter of fact essential to the agreem

Various cases which fall under Bilateral Mistake:

I.Mistake as to the subject Matter
II.Mistake as to the possibility of performing the contract
I. MISTAKE AS TO THE NATURE OF SUBJECT MATTER:
Where both the parties are working under a mistake relating to subject
matter
Agreement is void. Mistake as to subject matter covers following cases:

a. Mistake as to Existence of Subject Matter: Agreement regarding the sal

of the
Horse which is already dead though neither party not aware of the fact th
agreement
Is void.
b. Mistake as to Identity of Subject Matter: When one party intends to dea
on one
Thing and the other party intends another agreement becomes void.
(DELIVERY OF COTTON THROUGH SHIP)
c. Mistake as to the quality of the subject matter: If subject matter is
something
essentially different from what the parties thought it to be agreement is
void.
(TABLE NAPKINS SALE AT AN AUCTION)
a. Mistake as to the quantity of the subject matter: If both parties mistake
as to the
quantity of subject matter then the agreement is void.
(SALE OF SILVER BARS THE WEIGHT OF WHICH IS MISTAKEN)
II. MISTAKE AS TO THE POSSIBILITY OF PERFORMING THE CONTRACT:
Here both the parties believe that it is possible of performing the
But agreement in such case is void on the ground of impossibility which m

1. Physical impossibility:
Contract for hiring the room for viewing the procession was held to be
Because unknown to the parties procession has already been cancelle

Legal Impossibility:
Contract is void if it provides that something shall be done which cann
A matter of law cannot be done.
Legality of Object and
Consideration

According to Sec 23 of ICA, an agreement of which the object or

consideration is unlawful is void. Object means purpose or design of
the contract.
Both, the object and consideration of agreement must be lawful,
otherwise, the agreement would be void. The word lawful means
permitted by law. Sec 23 of the contract Act, speaks of 3 things;
1.Consideration for the agreement
2. Object for the agreement.
3. Agreement.

The consideration or the object of an agreement is unlawful

in the following cases;
1. If it is forbidden by law.
2. If it is of such a nature that if permitted, it would defeat the
provisions of any law.
3. If it is fraudulent.
1. It is forbidden by law; if the consideration or object for a promise is
such as is forbidden by law, the agreement is void. Te agreement is
forbidden by law, if the legislature penalizes it or prohibits it. It is illegal
and cannot become void even if the parties act, according to such
agreement sec 26, 27, 28, and 30 of the contract Act deals with cases
where the consideration or object of an agreement is considered
unlawful.
Ex; A promises to obtain for B, an employment in the public service and
B promises to pay 100/- to A. the agreement is void as the consideration
for it is unlawful.

2. If it is a such a nature that if permitted it would defeat

provisions of any law. A contract which seeks to exclude the
application of a statutory provision to the parties is not valid.
Ex: An agreement to give an annual allowance to the parents of an
adopted Hindu boy in order to induce them to consent to the adoption is
void.
3. If it is fraudulent; agreements which are entered into to promote
fraud are void. Thus, an agreement for the sale of goods for the
purpose of smuggling them out of the country is void and the price of
the goods so sold, cannot be recovered.
Ex. A, B and C enter into an agreement for the division among them of
gains acquired to be acquired by them by fraud. The agreement is void
as its object is unlawful
4. If it involves or implies injury to the person or property of
another; the object consideration of an agreement will be unlawful if it
tends to injure the person or property of another. Thus, an agreement
to pull down another house in unlawful. The word injury means
Criminal or wrongful harm
loss which ensures to a trader as a result of competition by a rival
trader is not injury within the meaning of this clause.
5. If the court regards it as immoral; where the consideration or
object of an agreement is such that the court regards it as immoral, the
consideration is void. The word immoral a means inconsistent with
what is right. Rent due in respect of a flat let to a prostitute for the
purpose of her trade cannot be recovered.

6. Agreements Opposed To Public Policy;
An agreement is said to be opposed to Public Policy when it is
harmful to the public welfare

Some of the agreements which are held to be opposed to public

policy and are unlawful are as follows:

A.Trading with enemy:

B. Agreement to commit a crime
C. Maintenance and champerty
D.Traffic relating to public officers
E.Agreements tending to create interest opposed to duty
F.Marriage and brokage agreements
G.Agreements tending to create monopolies
H.Agreements to influence elections to public officers
J.Agreements interfering with marital duties.
J.Agreements in restraint of marriage
K.Agreements in restraint of trade

1. Trading with enemy. Trading with enemy is clearly against public

policy in so far as it helps the enemy to the detriment to the country.
Besides it is against national honour to indulge in such acts in times of
national emergency. But, where a contract is made during peace times and
then war breaks out, one of the 2 things may result. Either the contract is
suspended or it stands dissolved depending upon the intention of the
parties.

2. Agreement to commit a crime; Where the consideration is to commit

a crime the agreement is opposed to public policy. The court will not
enforce such an agreement. Likewise an agreement to indemnify (to
protect/compensate against damage or injury caused) a person against
consequences of a criminal act it is opposed to public policy and the
agreement is unenforceable.
Ex. A promises to indemnify B in consideration of his beating C. The
agreement is opposed to public policy.
3. Maintenance and champerty ;
Maintenance and champerty agreements are void as
being opposed to public policy.
Maintenance may be defined as an agreement
whereby a person promises to maintain a suit in which
he has no interest.
Ex. A offers to pay 2000 to B if B will sue C. As motive
is to annoy C and this agreement between A and B is
maintenance agreement.

Champerty is an agreement whereby one party is to

assist another to bring in action for recovering money
or property and is to share in the proceeds of the
action.

Ex. G, an advocate entered into an agreement with his

client which was embodied in his clients letter to him.
The letter read, I hereby engage you with regard to
my claim against the Baroda Theatres Ltd, for a sum
of 9400/-. Out of the recoveries, you may take fifty
percent of the amount received. The Supreme Court
4. Trafficking in public offices and titles:
Agreement concerning the sales or transfer of public offices and titles
(padmasri, Param Veer Chakra) for monetary consideration is unlawful
being opposed to the public policy. Similarly an agreement to pay money
to induce a public servant to act corruptly or to retire are void on the
ground of public policy.
Ex. A paid B, a public servant, a certain amount inducing him to retire
from service, thus, is paving the way for A to be appointed in his place.
The agreement was held to be void.
Venkataramana(Vs) J.M. Lobo (1923)

5. Agreements tending to create interest opposed to duty; If a

person enters into an agreement whereby he is bound to do something
which is against his public or professional duty the agreement is void on
the ground of public policy.
An agreement by a newspaper proprietor not to comment on the conduct
of the particular person is unlawful being opposed to public policy.

6. Marriage brokerage or brocage agreements:

Agreements for payment of money in consideration of procuring a marriag
Illegal. These agreement could be:
a.To remunerate or reward a third person in consideration of negotiating a
marriage.
b. Agree to pay money to the parent or the guardian Example: Dowry
c. Consideration to the parents for giving the minor in marriage
Such agreements are contrary to public policy and cannot be enforced.

7. Agreement tending to create monopolies:

An agreement tending to create monopolies and exclusive rights tend to b
8. Agreements to influence elections : Any agreement with voters
tending to influence them by improper means and agreement with third
persons to influence voters by indirect means are all invalid. Similarly,
an agreement between rival candidates that one shall withdraw in
consideration of a promise by the other to appoint him to office is void.
Ex; A promises B, the owner of a newspaper, 500/- in consideration of
the publication by B, in his news paper of false statements in regard to
a candidate for election, B published them, the agreement is void as
opposed to public policy.

9. Agreements interfering with marital duties; Agreements which

interference with the performance of marital duties are void, as being
opposed to public policy. Thus, an agreement to lend money to a woman
in consideration of her getting a divorce and marrying the lender is void.
10.Agreements in restraint of marriage:
Every agreement in restraint of marriage of a person other than th
The minor is void. This is because the law regards marriage and married s
As the right of every individual.
P promised to marry L only and to pay L a sum of Rs.2000 if he marries an
Later P married X. Held L could not recover the money agreed by P as it w
Transaction.

11.Agreements in restraint of trade:

An agreement which interferes the liberty of a person to engage himself in
Lawful trade, profession or vocation is called an agreement in restraint of t
Public policy requires that every man should be given the liberty to work fo
And that right shall not be deprived
Agreement not to compete with the company in any business was void.
 Quasi-Contract
A contract is one which is generally created intentionally by the
parties but Quasi Contract is one which is created by law. It
resembles a contract in the sense that legal obligation is imposed
on a party who is required to perform it.
It rests on the ground that,
A person shall not be allowed to enrich unjustly
at the expense of the other.
Certain relations resemble those created by a contract. Certain
obligations which are not contracts in fact but are so in the
contemplation of law. These are called Quasi-Contracts.
Illustration:
T a tradesman leaves goods at Cs house and by mistake C treats
the goods as his own and C is bound to pay for the goods.

Not contracts in fact but are so in the

Contemplation of law
KINDS OF QUASI
CONTRACTS
1. claims for necessaries supplied:
where necessaries are supplied to a person, incapable of
entering into a contract, or anyone to whom he is legally bound to
support, the supplier is entitled to recover the price from the
property of the incompetent person under section 68 of the Contract
Act. E.g A supplies B, a lunatic, with necessaries suitable to his
condition in life. A is entitled to be reimbursed from Bs property.

2. Re-imbursement of person paying the money due by

another, in payment of which he is interested:
section 69 provides
that a person who is interested in the payment of money
which another is bound to pay, and who therefore, pays it, is
entitled to be reimbursed by the other.
Ex: A sub-tenant pays the amount of rent due by the tenant to the
landlord
3.Obligation of person enjoying the benefit of non-gratuitous
acts: sec 70
when a person lawfully does anything for another person or delivers
anything to him, not intending to do so gratuitously, and such other
person enjoys the benefits thereof, the latter is bound to make
compensation to the former in respect of , or, restore , the thing so done
or delivered. Eg: A, a tradesman, leaves goods at Bs house by mistake. B
treats the goods as his own. He is bound to pay for them to A
4. Responsibility of finder of goods : (sec 71)
A person who finds goods belonging to another and stakes them into
his custody, is subject to the same responsibility as bailee (a person to
whom goods are sent with a purpose that is for a custody or repair
without transfer of ownership). He is bound to take as much care of the
goods. He must also take necessary measures to tract its real owner. if he
does not, he will be guilty of wrongful conversion of the property.
case law : Hollins Vs Fowler: H picked up a diamond on the floor of Ks
shop and handed it to F to keep it till the true owner appeared. Inspite of
best efforts the true owner could not be traced. After sometime H
tendered to F to hand over the diamond to him (H). F refused. It was held
that F must return the diamond to H as H was entitled to retain it.
The finder can sell the goods in the
following cases :
a) perishing of goods
b) when the owner cannot, with
reasonable diligence, be found out
c) when the owner is found out, but
he refuses to pay the lawful charges
of the finder
5. Money paid by mistake or
under coercion: a person to whom
money has been paid or anything
delivered by mistake or under
coercion, must repay or return it. Eg.
A and B jointly owe Rs 1000 to C. A
alone paid the amount to C and B not
knowing of this fact, paid Rs 1000 to
 Performance of contract

Performance of a contract takes place when

the parties to the contract fulfill their obligation arising under the
contract
within the time and in the manner prescribed.
Briefly speaking,
Performance of a contract means
fulfillment of the legal obligations created by a contract.

Section 37 of the Indian Contract Act deals lays down that,

the parties to a contract must either
a.perform or
b. offer to perform their respective promises,
unless such performance is dispensed with or executed under the
provisions of law.
Offer of performance or Tender:
Sometimes it so happens that the promisor offers to perform his
obligations under the contract at the proper time and place
but
the promisee does not accept the performance.
This is known as attempted performance or tender".

* section 38 sums up the position in this regard thus: where a

promisor has made an offer of performance to the promisee, and
the offer has not been accepted, the promisor is not responsible for
non-performance. Thus, a tender of performance is equivalent to
actual performance. It excuses the promisor from the further
performance and entitles him to sue the promisee for the breach of
contract.
Essentials of valid tender
1. It must be by a person who is in a position willing to perform the
promise

2. It must be at the proper time and place

3. It must be of the whole quantity contracted with

4. It must be unconditional

5. Must be made to the proper person

6. It may be made to one of the several joint promisees.

7. In case it is a tender of goods it must give reasonable opportunity to

promisee for inspection of goods

8. In case of tender of money debtor must make a valid tender if

creditor refuses to accept it debtor is not discharged from making the
payment. But when creditor files a suit against debtor the debtor can
EFFECT OF REFUSAL OF A PARTY TO PERFORM THE PROMISE WHOL

When a party to a contract refuses to perform or disables himself from perf

His promise in its entirety
the promisee may put an end to the contract
but
if the promisee has signified by words or conduct his assen
in the continuance of the contract he cannot repudiate it.
Ex: A, a singer enters into a contract with B manager of the theatre to sing
Theatre two nights in every week during the next two months and B agrees
Her Rs.100 for each night performance on the sixth night A willingfully abse
Is at liberty to put an end to contract but if B allows A to sing on seventh ni
That B signified assent of continuance of contract and cannot put an end to
Contract but is entitled of compensation for the damage sustained by him.

When promisee puts an end to the contract under Sec.39

-it is deemed that he rescinded a voidable contract
and
-bound to restore all the benefits that he may have received under the cont
 Contracts which need not be performed:
Sections 62 and 67 of the Contract Act deals with contracts which need
not be performed. The relevant provisions are as under:
1.When the performance is impossible either because of physical
impossibility
or because of legal impossibility.
2. When the contract is illegal.
3. When the parties agree to substitute the old contract with the new
contract
4. When the promisee he himself
a. dispenses performance
b. extends time for performance
c. accepts any satisfaction
5. When the person at whose option voidable, rescinds it.
6. When the promisee neglects to provide reasonable facilities for
performance.
By whom must contracts be performed?
1. Promisor himself: (AR Rahman promises to perform a musical night
for KL MBA students, the promise must be performed by himself)
2. Agent: where personal skills are not necessary
3. Legal representatives: in case of death of the promisor before
performance
4. By third party: if the promisee accepts performance of the promise
from a third party, there is a discharge of the contract.
5. Joint promisors: When two or more persons make a joint promise
they are the joint promisors.
Reciprocal promises:
Promises which form the consideration or part of the consideration for
each other are called reciprocal promises. In a reciprocal promise
each party is not only a promisor but also a promisee at the same
time. Most of the promises are reciprocal.
For ex: A promises to do or not to do something in consideration of Bs
promise to do or not to do something, the promises are reciprocal.

Rules regarding performance of reciprocal promises:

1. Simultaneous reciprocal promises : where tow promises are to
2.Order of performance of reciprocal promises: where the order in
which reciprocal promises are to be performed is expressly fixed by the
contract, they must be performed in ;that order and where the order is
not expressly fixed by the contract, they must be performed in that
order which the nature of the transaction requires. Ex: A and B contract
that A shall build a house for B at a fixed price. As promise to build the
house must be formed before Bs promise to pay for it.

3. Effect of one party preventing another from performing

promise:
when a contract contains reciprocal promises, it may happen that one
party to the contract prevents the other form performing his promise.
In such a case, the contract becomes voidable at the option of the
party so prevented.

4. Effect of default as to promise to be performed first: when the

nature of reciprocal promises is such that one of them cannot be
performed till the other party has performed his promise then if the
other party fails to perform it, he cannot claim the performance of the
reciprocal promise from the first party.
Ex: A hires Bs ship to take in and convey, from Kolkatta to China, a
Discharge of contract

Discharge of contract : a contract creates rights and obligations.

Discharge of contract means termination of the contractual
relationship between the parties. A contract is said to be discharged
when it ceases to operate i.e, when the rights and obligations
created by it come to an end.
Modes of discharge:
1. Discharge by performance
2. Discharge by agreement
3.Discharge by lapse of time
4. By impossibility
5. By operation of law
6. By breach of contract
1. Discharge by performance: this is the one of the most usual
ways of discharge of contract. Performance means the doing of that
which is required by a contract. Discharge by performance takes
place when the parties to the contract fulfil their obligations.
Performance may be 1.Acutal performance and 2. attempted
performance

Actual performance: when both the parties perform their promises,

the contract is discharged. Performance should be complete, precise
and according to the terms of the agreement. Most of the contracts
are discharged by performance in this manner.
Attempted performance or tender: tender is not actual performance
but is only an offer to perform the obligation under the contract.
Where the promisor offers to perform his obligation, but the promisee
refuses to accept the performance, tender is equivalent to actual
performance.
2. Discharge by agreement: contract is the result of an
agreement between two or more parties. In the similar manner
parties may agree to terminate the contract. The parties may
agree to terminate the existence of the contract by any of the
following ways:
a) Novation: substitution of a new contract in place of the old
existing contract is known as Novation of contract
b) Alteration: it means change in one or more of the terms of the
contract. In case of novation there may be a change of the
parties, while in the case of Alteration, the parties remain the
same.
C) Recession: recession means cancellation. All or some of the
terms of contract may be cancelled. Recession results in the
discharge of contract.
d) Remission : remission means acceptance of a lesser
performance that what is actually under the contract.
e) wavier: waiver means giving up or foregoing certain rights.
When a party agrees to give up its rights, the contract is
discharged.
3. Discharge by lapse of time
Every contract must be performed within the stipulated period or
within a reasonable time of contract. Lapse of time discharges of
contract. The Indian limitation Act, 1963 has prescribed the period
within which the existing rights can be enforced in court of law. In
the case of simple contracts, the period of limitation is three years.

4. Discharge by Impossibility of performance

A contract to be valid must be capable of being performed. if it
contains an undertaking to perform an impossibility, it is void . Law
does not compel people to do impossible things. An agreement to
do an impossible act in itself is void.
1. impossibility existing at the time of agreement. (a) know to the
parties: eg: A agrees with B to discover treasure by magic
(b) unknown to the parties: at the time of making contract both
the parties are ignorant of the impossibility as the subject matter
is destroyed. the contract is void

5. Discharge by operation of law

A contract may be discharged independently of the wishes of the parties.
i.e by operation of law. This includes
a) by death
b) by insolvency
C) by unauthorized alteration of the terms of a written agreement
d) merger: merger takes place when an inferior right accruing to a party
under a contract merges into a superior right accruing to the same party
under the same or some other contract. E.g.: P holds a property under a
lease. He later buys the property. His rights as a lessee merge into his
rights as owner.

6.Breach of contract
Breach of contract means a breaking of the obligation which a contract
imposes. it is a failure of a party to perform his obligations. It occurs when
a party to the contract without any lawful excuse does not fulfill his
contractual obligation. Breach may be 1. Actual breach of contract
2.Anticipatary breach of contract
Actual breach of contract: At the time when the performance is due:
actual breach of contract occurs, when at the time when the performance
is due, one party fails or refuses to perform his obligations under the
 Indemnity
Contracts of Indemnity and Guarantee are species of General
Contract and as such principles of Indian Contract Act, 1872 are
applicable and special principles related to Indemnity and
Guarantee are contained in
Chapter VIII of Indian Contract Act
from Sec 124 to 147
Indemnity contract : a contract of indemnity is a contingent contract. It
is entered into with the object of protecting the promisee against
anticipated loss. Section 124 of the Indian Contract Act defines a contract
by which one party promises to save the other from loss caused to him
by the conduct of the promisor himself, or by the conduct of any other
person. The person who promises to make good the loss is called the
indemnifier (promisor) and the person whose loss is to be made good is
called indemnified (indemnity holder) (promisee). A contract of
indeminty is really a class of contingent contract.
Ex: A and B go into a shop. B says to the shop-keeper Let him (A) have
the goods I will see you paid. The contract is one of indemnity.
EX: A and B claim certain goods from a railway co, A takes delivery of the
goods by agreeing to compensate railway co against loss in case B turns
out to be the true owner. There is a contract of indemnity between A and
Railway co.,
Rights of the Indemnifier:

ICA is silent on the rights of the indemnifier but as per English Law
rights are analogous to that of the surety.

Rights of Indemnity holder

Section 125 deals with rights of indemnity holder.
The indemnity holder is entitled to receive
a) all damages promised by the Indemnity contract.
b)all costs of bringing and defending such suits.
c)all sums payable in terms of any compromise.

Time for commencement of Indemnifier Liability:

ICA does not state the time of the commencement of the
indemnifiers liability under the contract of indemnity
If the indemnified had incurred a liability and that liability is
absolute
he is entitled to call upon indemnifier to
save him from that liability and pay it off.
Contract of Guarantee:
According to section 126,
a contract of a guarantee is a
contract to perform the promise or
to discharge the liability of a third person in case of his
default.

A contract of guarantee involves three parties , the creditor, the

surety and the principal debtor. The person who gives the
guarantee is called Surety the person in respect of whose
default the guarantee is given is called principal debtor and
the person to whom the guarantee is given is called the
creditor.

For Ex: A requests B to lend Rs.500 to C and guarantees that if

C fails to pay the amount he will pay. This is a contract of
Guarantee. A in this case is the surety, B is the creditor and C is
the Principal Debtor.

There is a triangular relationship in which there are three

collateral contracts between
principal debtor-creditor
ESSENTIALS OF VALID GUARANTEE CONTRACT

6. Existence of the principal debtor is necessary

Principal Debtor

Guarantee contract
1.There should be an agreement (with concurrence)
Where in all parties should be competent
2.It may be oral or written
3.No misrepresentation
4. Essentials of valid contract should be fulfilled.
5.Consideration received by the PD
Is sufficient for the surety

Creditor Surety

7.Liability of the surety is

Not primary but it is
Collateral and secondary.
 Difference between indemnity and guarantee
contracts
Indemnity Guarantee
1. There are two parties to the 1. Three parties. Creditor, principal
contract ie indemnifier and debtor and surety
indemnified

2. The liability of indemnifier is 2. The liability of the surety to the

primary and independent creditor is secondary

3. There is only one contract ie 3. a contract of guarantee, there are

between the indemnifier and three contract : one between
indemnified principal debtor and creditor, second
between creditor and the surety and
third between surety and the
principal debtor

4. The liability of the indemnifier 4 there is usually an existing debt or

arises only on the happening of a duty, the performance of which is
contingency guaranteed by the surety.
No request Surety gives guarantee only at the
request of the debtor.
5 A surety on discharging the debt
Nature of suretys liability
Section 128 of the Indian contract Act defines
the nature and extent of suretys liability.
It provides that liability of the surety is co-extensive with that of the
principal debtor. The term co-extensive means that of the principal
debtor shows the quantum of the suretys liability. The surety is
liable for what the principal debtor is liable. The liability of the
surety arise immediately on the default of the debtor. Notice of
default is not necessary to bring an action against the surety. Where
the liability is to arise only on the happening of a contingency, the
surety is not liable until that contingency has acutely happened.
Right of surety
1. Surety is a person who guaranteed the due discharge or
performance of an obligation outstanding against third person. A
contract of guarantee confers certain rights and obligations on the
surety. A surety has rights against
2. I the creditor II the principal debtor III the co-sureties
I Rights against principal debtor:
a. rights of subrogation: soon after making a payment and
discharging the liability of the principal debtor, the surety is clothed
with all the rights of the creditor which he can himself exercise
against the principal debtor.
b. right to claim indemnity (sec 141) as between the surety and the
principal debtor there is an implied promise to indemnify the surety.
Under sec 145 the surety is entitled to recover from the principal
debtor whatever sum he has rightfully paid under the guarantee. The
surety can recover from the principal debtor not only the actual
amount he has paid to the creditor , but also interest thereon.

II Rights of the surety against the creditor:

Before payment of the guaranteed debt: a surety may, after the
guaranteed debt has become due and before he is called upon to
pay, require the creditor to sue the principal debtor. However, the
surety will have to indemnify the creditor for any expenses or loss
resulting there from.
Right to set-of: the surety is also entitled to the benefit of any set-off
or counter claim which the principal debtor might possess against the
creditor in respect of the same transaction. For eg. If the creditor
III Right against co-sureties : it would be unfair if one co-surety
is compelled to pay the entire debt of the principal debtor. In such
cases, the surety can claim contribution for the excess amount paid
by him. Equality of burden is the basis of co-surety ship.
Bailment

The term Bailment is derived from a French word bailior which

means to deliver. It denotes a contract resulting from delivery. In law
it is used in technical sense, it involves change of possession and not
transfer of ownership, section 148 of the Contract Act defines
bailment as
the delivery of goods (1) by one person
to another for some purpose (2),
upon a contract (3) that they shall,
when the purpose is accomplished,
be returned (4) or otherwise disposed of
according to the directions of the person delivering them.
The person who delivers the good is called the bailor, the person to
whom goods are delivered is called bailee
Eg of bailment : A lends his motor cycle to B for his use
student borrowed a book from library
Essential characteristics of bailment

1.Delivery of goods
2. Delivery of goods must be some purpose
3. Contract: bailment is based upon a contract between the parties.
In exceptional cases, it can also be implied by law. In case of finder
of goods, bailment implied by law.
4.Return of goods
5.Movable
6. Movable goods
7. Possession only but not ownership
Thus if property of goods is transferred for money consideration it
is sale and not bailment similarly when money is deposited in the
banking account the relationship of the debtor and creditor arises
and there is no bailment

However a hire-purchase agreement is not fully a contract of

bailment It is bailment plus an element of sale.

Kinds of bailment/Classification of bailments:

Classification on the basis of benefits derived by the parties:
1.For the exclusive benefits of the bailor:
delivery of valuables to the neighbours for custody

2. For the exclusive benefits of the bailee:

lending a bicycle for the friend for his use (No consideration)
3. For mutual benefit:
Hiring or lending or repair here consideration passes from the
bailor to the bailee

Classification on the basis of presence or absence of

consideration
Gratuitous and non-gratutious bailment:
a bailment without any reward or consideration is called gratuitous
bailement.
Eg. A gives a watch to his friend B freely. It is a gratuitous.
If a watch is given to repair . It is a non-gratutious bailment.

Voluntary and on
Classification involuntary
the basisbailment:
of nature of contract of bailment:
voluntary bailment is an outcome of expression and
involuntary bailment arises by the operation of law (finder of
lost goods)
Rights and duties of bailor
1.Right to terminate the bailment
2. Enforcement of bailees duties
3.right to demand return of goods
4.right to claim the increase or profit from goods bailed
5.Right against the third party: if a third party wrongfully deprives the
bailee of the use or posession of goods bailed, or does any injury, the
bailor may bring a suit against the third person for such deprivation or
injury. This right is available to the bailee also.l

Duties of bailor
1.Duty to disclose faults in the goods bailed
Eg: A lends a horse, which he knows to be ferocious to B. He does not
disclose the fact that the horse is ferocious. The horse runs away. B is
thrown and injured. A is responsible to B for damages sustained.
2.To bear extra-ordinary expense
3.To indemnify bailee
Rights and duties of bailee

Rights of bailee:
1. enforcement of bailors durites
2.Right to compensation
3. Right to remuneration
4.Right to claim damages
5.Right of lien
6. Right of third person claiming goods bailed

Duties of bailee
1. duty to take reasonable care
2.duty not to use unauthorized use of goods
3,duty no to mix bailors goods with his own goods
4. not to set up any adverse title against bailor
5.to return goods bailed
Lien
Lien means the right of a person to retain possession of some goods
belonging to another until some debt or claim of the person in possession is
satisfied. A lien can be (1) particular lien (2) general lien
Particular : a particular lien is one which is available to the bailee against only
those goods in respect of which he has rendered some service involving the
exercise of labour or skill . Eg: goods bailed to tailor
General :a general lien is a right to retain all the goods of another until all the
claims of the holder are satisfied.
Eg: bankers can exercise general lien

Finder of lost goods

Finder of lost goods is a person who finds goods belonging to another and
take them into his custody. Section 71 of the contract act lays down that a
person finds goods belonging to another and takes them into his custody is
subject to the same responsibility as a bailee
Obligation of finder of lost goods:
1. to take reasonable care of goods
2. not to mix the goods with his own
3.find the true owner
4. not to use for his personal
5. to return any increase in goods
Rights of finder of lost goods:
1. right of lien : until recovers expense