INDIAN CONTRACT ACT,

1872
INTERPRETATION CLAUSE
• (a) 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 other to such act or abstinence,
he is said to make a proposal.
• “Proposal” is synonymous with “offer”.
• “Proposal /offer” distinguished from “invitation to offer”.
Example : Book catalogue – indicating prices against books. If
person is interested – he may make an offer, it will be open
for the person circulating the catalogue to accept or not the
offer.
• When the goods are displayed either in a show-window or inside the
shop and such goods bear price-tags, the question which arises in
such a case is, whether that amounts to an offer to sell goods at
prices mentioned on the price tags.
• It has been held in Pharmaceutical Society of Great Britain v. Boots
Cash Chemists Ltd. (1952) 2 Q.B. 795), that
• “that merely amounts to invitation to treat and, therefore, if an
intending buyer is willing to purchase the goods at a price mentioned
on the tag, he makes an offer to buy the goods. The shopkeeper has
the option to accept the offer or reject the same. The contract will
arise only when the offer is accepted. No customer can force the
shopkeeper to sell the goods at the price mentioned on the tag.”
• Harvey v. Facey is an example where the quotation of the price was held not to be an offer. The
facts of the case are as under:
• The defendants were the owners of a plot of land known as Bumper Hall Pen. The plaintiffs being
interested in purchasing the same sent a telegram to the defendants, "Will you sell us Bumper
Hall Pen? Telegraph lowest cash price."
• The defendants in reply telegraphed, "Lowest price for Bumper Hall Pen, £ 900."
• The plaintiffs sent another telegram to the defendants saying, "We agree to buy Bumper Hall Pen
for £ 900 asked by you. Please send us your title deeds.“
• The plaintiffs contended that the second telegram from the defendants quoting lowest price was
an offer and the same had been accepted by the plaintiffs, and the contract was complete. The
defendants, on the other hand, contended that quoting the price was not an offer which could be
accepted.
• The Judicial Committee of the Privy Council held that exchange of the above stated telegrams
had not resulted in a contract. It was observed that the first telegram had asked two questions,
one regarding willingness to sell, and the other regarding the lowest price. In reply only lowest
price
was quoted, and this quoting of the price was not an offer. The third telegram from the plaintiffs
saying, "we agree to buy" was only an offer and not the acceptance of an offer. Since this offer
had not been accepted there was no binding contract between the parties
• (b) When the person to whom the proposal is
made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when
accepted, becomes a promise;

• (c) The person making the proposal is called the

“promisor”, and the person accepting the
proposal is called the “promisee”;
• (d) When, at the desire of the promisor, the promisee
or any other person has done or abstained from
doing, or does or abstains from doing, or promises to
do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for
the promise.
• (e) Every promise and every set of promises, forming
the consideration for each other, is an agreement.
• (f) Promises which form the consideration or part of
the consideration for each other are called reciprocal
promises.
• (g) An agreement not enforceable by law is said to be
void;
• (h) An agreement enforceable by law is a contract;
• (i) An agreement which is enforceable by law at the
option of one or more of the parties thereto, but not
at the option of the other or others, is a voidable
contract;
• (j) A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable.
 Communication, acceptance and revocation
of proposals
The communication of proposals, the acceptance of
proposals, and the revocation of proposals and
acceptances, respectively, are deemed to be made by
any act or omission of the party proposing, accepting
or revoking by which he intends to communicate such
proposal, acceptance or revocation, or which has the
effect of communicating it.
 Communication when complete
• The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.
The communication of an acceptance is complete,—
as against the proposer, when it is put in a course of transmission to him, so
as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
• The communication of a revocation is complete,—
as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the power
of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
 Revocation of proposals and acceptances.
• A proposal may be revoked at any time before the communication of
its acceptance is complete as against the proposer, but not
afterwards.
• An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor,
but not afterwards.
Revocation how made.
• A proposal is revoked—
• (1) by the communication of notice of revocation by the proposer to
the other party;
• (2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
• (3) by the failure of the acceptor to fulfil a condition precedent to
acceptance; or
• (4) by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.
7. Acceptance must be absolute :
• —In order to convert a proposal into a promise, the acceptance
must—
• (1) be absolute and unqualified;
• (2) be expressed in some usual and reasonable manner, unless the
proposal prescribes the manner in which it is to be accepted.
• If the proposal prescribes a manner in which it is to be accepted, and
the acceptance is not made in such manner, the proposer may,
within a reasonable time after the acceptance is communicated to
him, insist that his proposal shall be accepted in the prescribed
manner, and not otherwise; but if he fails to do so, he accepts the
acceptance.
8. Acceptance by performing conditions, or
receiving consideration
• Performance of the conditions of a proposal, or
the acceptance of any consideration for a
reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal.
9. Promises, express and implied
• In so far as the proposal or acceptance of any
promise is made in words, the promise is said to be
express. In so far as such proposal or acceptance is
made otherwise than in words, the promise is said to
be implied.
End of slides
Indian Contract Act

Cont…
Consideration
• (d) When, at the desire of the promisor, the promisee
or any other person has done or abstained from
doing, or does or abstains from doing, or promises to
do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the
promise;
• Essentials of valid consideration :
1. Consideration to be given “at the desire of the promisor”.
2. To be given “by the promisor or any other person”.
3. May be past, present or future in so far as definition says
that the promise :
i. Has done or abstained from doing, or
ii. Does or abstains from doing, or
iii. Promises to do or abstain from doing, something.
4. There should be some act, abstinence or promise by the
promisee, which constitutes consideration for the promise.
1. Consideration only at the desire of the promisor
It is essential that the consideration must have been given at the desire of the promisor,
rather than merely voluntarily or at the instance of some third party.
In Durga Prasad v. Baldeo, (1880) 3 All. 221) the consideration for the promise had not moved at the desire
of the promisor but some other person, and it was held that the same was not a sufficient consideration to
support the promise.
The facts of the case are the plaintiff constructed certain shops in a market at the instance of the Collector
of that place. Subsequently, the defendants occupied one of the shops in the market. Since the plaintiff had
spent money for the construction of the market, the defendants, in consideration thereof, made a promise
to pay to the plaintiff commission on the articles sold through their (defendant's) agency in that market. The
defendants failed to pay the promised commission.
In an action by the plaintiff to recover the commission, it was observed that the consideration for the
promise to pay the commission was the construction of the market by the plaintiff. Such construction had
not been done at the desire of the defendants, but on the order of the Collector. It was, therefore, held that
since the consideration did not move at the desire of the defendants (promisors in this case), this did not
constitute valid consideration and therefore the defendants were not liable in respect of the promise made
by them.
2. Consideration by Promisee or any other person (Privity of
Consideration)

• According to Indian law, consideration may be given by the

promisee or any other person.
• In India, there is a possibility that consideration for the promise
may move not from the promisee but a third person, who is not
a party to the contract.
• In England, the position is different. There the rule is that
consideration must move from the promisee and nobody else.
Privity of contracts
The doctrine of privity of contract means that only those
persons who are parties to the contract can enforce the
same. A stranger to the contract cannot enforce a
contract even though the contract may have been
entered into for his benefit.
Example :
If in a contract between A and B some benefit has been conferred upon X, X
cannot file a suit to enforce the contract because A and B are the only
parties to the contract whereas X is stranger to the contract.
• English Law

• In Tweddle v. Atksinson, (1861) 1 B. & S. 393) it was held that only parties
to the contract can sue each other.
• In that case the plaintiff A, married a girl, B. After this marriage there was
contract in writing between A's father and B's father that each would pay a
certain sum of money to A and that A will have the power to sue for such
sums. After the death of the two fathers, A brought an action against the
executors of B's father to recover the promised amount.
• It was held that A could not sue for the same.
• In the above stated case the plaintiff was both a stranger to contract as
well as stranger to consideration and he could not enforce the claim.
• In India
• The rule that “ privity of contract” is needed and a stranger to contract cannot bring an action is
equally applicable in India as in England.
• It was held in Narayani Devi v. Tagore Commercial Corporation Ltd., A.l.R. 1973 Cal. 401 that
even though under the Indian Contract Act the definition of consideration is wider than under
English law, yet the common law principle of privity of contract is generally applicable in India, with
the effect that only a party to the contract is entitled to enforce the same.
• The authority for the application of the rule in India is the decision of the Privy Council in Jamna Das v.
Ram Avtar (1911) 30 I.A. 7),
• In that case A had mortgaged some property to X. A then sold this property to B, B having
agreed with A to pay off the mortgage debt to X. X brought an action against B to recover the
mortgage money. It was held by the Privy Council that since there was no contract between X and
B, X could not enforce the contract to recover the amount from B.
Pointing out that the undertaking to pay back the mortgage money being only by the purchaser of
the property in favour of the vendor thereof, Lord Macanaughtan stated :
"The mortgagee has no right to avail himself of that. He was no party to the sale. The purchaser
entered into no contract with him,and the purchaser Is not personally bound to pay this mortgage
debt"
Exceptions to the rule that a stranger to contract cannot sue
• Trust of contractual rights or beneficiary under a contract

• One of the exceptions to the doctrine of privity of contract was

recognised by Lord Haldane in Dunlop Pneumatic Tyre Co. v.
Selfridge & Co. itself. While it was mentioned that only a party to a
contract can sue on it, no such right is conferred on a third party, it
was also stated that "such a right may be conferred by way of
property, as, for example, under a trust,, The basis of an action by
the third party in such a case actually not the enforcing of contract
but the right conferred by a particular contract in favour of a third
party in the form of trust, etc. For example, in a contract between A
and B, beneficial right in respect of some property.
• ii) Conduct, Acknowledgment, or Admission

• Sometimes there may be no privity of contract between

the two parties, but if one of them by his conduct,
acknowledgment, or admission recognises the right of
the other to sue him, he may be liable on the basis of
the law of estoppel.
• [The term "Estoppel," comes from an old-French word-
"Estoupail" (or variation), which means "stopper plug", referring
to placing a brake on the imbalance of the situation. The
rationale behind estoppel is to prevent injustice owing to fraud or
inconsistency.]
ii) Provision for marriage expenses or maintenance under family
arrangement :
• Where, under a family arrangement, the contract is intended to
secure a benefit to a third party, he may sue in his own right as
a beneficiary.
Such an action has been allowed in many cases where, on the
partition of joint family property between the male members, a
provision is made for the maintenance of the female members
of the family.
• In Veeramma v. Appayya ( A.I.R. 1957 A.P. 965), under a
family arrangement, the father’s house was to be conveyed to
his daughter and the daughter undertook to maintain him in his
lifetime. The daughter being a beneficiary under the
compromise arrangement, it was held that she was entitled to
sue for the Specific performance in her favour.
End of slides
Contract Act

Cont..
3. Consideration may be Past, Present (Executed) or
Future (Executory)
• Indian Contract Act recognises three kinds of consideration, viz,
Past, Executed and Executory.
When, in return for the promise, the promisee or any other
person
(a) has done or abstained from doing, the consideration is Past.
(b) does or abstains from doing, the consideration is Executed
or present.
(c) promises to do or to abstain from doing, the consideration is
Executory or Future.
Whether the consideration is Past, Executed or Executory, it is
essential that it must have been given "at the desire of the
promisor”.
(a) Past Consideration
• As noted above, Indian Contract Act recognises past consideration. It
means that the consideration for any promise was given earlier and the
promise is made thereafter. It is, of course, necessary that at the time the
consideration was given that must have been done at the desire of the
promisor.
• For example, ‘A’ requests ‘B’ to find his lost dog. After B does the same, if A
promises to pay you Rs. 100 for that, it is a case of past consideration. For
A’s promise to pay B Rs. 100 the consideration is B efforts in finding A’s lost
dog and the same had been done before A promised to pay the amount. In
this case the consideration has been given at the request of A, because it is
only when A requested B that B found the dog. This constitutes valid (Past)
consideration under sec. 2(d), and therefore the promise is enforceable.
• Past services voluntarily rendered

• Indian Contract Act recognises only such

consideration which has been given at the desire
of the promisor, rather than voluntarily. If
consideration has been given voluntarily, it is no
consideration.
(b) Executed or Present Consideration
• When one of the parties to the contract has performed his part of the
promise, which constitutes the consideration for the promise by the
other side, it is known as executed consideration. Performance of the
promise by the other side is the only thing now to be done.
• For example, A makes an offer of reward of Rs. 100 to anyone who
finds his lost dog and brings the same to him. B finds the lost dog and
delivers the same to A. When B does so, that amounts to both the
acceptance of the offer, which results in a binding contract under
which A is bound to pay Rs. 100 to B, and also simultaneously giving
consideration for the contract. The consideration in this case is
"executed".
(c)Executory or Future Consideration

• When one person makes a promise in exchange for the

promise by the other side, the performance of the obligation by
each side to be made subsequent to the making of the contract,
the consideration is known as executory.
• For example, A agrees to supply certain goods to B and B
agrees to pay for them on a future date, this is a case or
executory consideration.
4. Something, i.e., An Act, Abstinence or Promise by the
promise constitutes consideration
• According to the definition of consideration contained in Sec.
2(d), when at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from doing
something, such act or abstinence or promise is called
consideration for the promise,
• It means that if nothing is done in exchange for the promise,
i.e., when there is no act, abstinence or promise, there is no
consideration.
10. What agreements are contracts
• All agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby
expressly declared to be void.
• Nothing herein contained shall affect any law in force in and
not hereby expressly repealed by which any contract is
required to be made in writing or in the presence of
witnesses, or any law relating to the registration of
documents.
A contract or an obligation to perform a promise could arise in the
following way

• I. Agreement and Contract - The most common way of making a

contract is through an agreement.

• II. Standard Form Contracts - In the modern age some persons,

institutions or establishments such as the Railway, Insurance
Companies, Bank, manufacturers of various goods, etc., may have to
enter into a very large number of contracts with thousands of
persons. As a general rule, such Standard Form Contracts are as much
valid as those entered into through due negotiation.
• III. Promissory Estoppel-Sometimes there may be no
agreement and contract in strict sense of the term,
but a person making a promise may become bound of
the application of the equitable doctrine of estopple.
Different types of agreements.
1. Contract
According to sec.2(h), contract is an agreement which is enforceable by
law. In order that an agreement becomes a contract, it has to satisfy all
the essentials of a valid contract as mentioned in section 10.

2. Void Agreements
According to sec. 2(g), an agreement not enforceable by law is said to
be void.
For instance - Those agreements include an agreement without
consideration, an agreement in restraint of marriage, and an
agreement in restraint of trade.
• 3. Voidable contracts

According to section 2(i), an agreement which is enforceable by law at

the option of one or more of the parties thereto, but not at the option
of the other, is a voidable contract. Thus, a voidable contract is one
which could be avoided by one of the parties to the contract at his
option. If such a party does not avoid the contract, the contract
remains valid, but if it prefers to avoid the contract, then the contract
becomes void.
For instance, when the consent of a party to a contract has been
obtained by coercion, undue influence, fraud or misrepresentation, the
contract is voidable at the option of the party whose consent has been
so obtained.
Void agreement and voidable contract distinguished

• A void agreement is a nullity from its inception and no rights will

accrue to any party thereto or his transferee, etc.
• A voidable contract, on the other hand, is a contract which can be
avoided at the option of one of the parties thereto. Such a contract
remains valid until it has been avoided but becomes void only if and
when it is avoided. Until such a contract has been avoided, rights may
accrue in favour of the parties to the contract or
•End of slides
Contract act
Cont..
11. Who are competent to contract
• Every person is competent to contract
• who is of the age of majority according to the law to
which he is subject, and
• who is of sound mind, and
• is not disqualified from contracting by any law to
which he is subject.
Who is a minor?
• A person who has not attained the age of majority is a minor.
• Sec.3 of the Indian Majority Act, 1875 provides that, a person is
deemed to have attained the age of majority when he completes the
age of 18 years, except in case of a person of whose person or
property a guardian has been appointed by the Court in which case
the age of majority is 21 years.
• In such a case the majority does no arise till the completion of 21
years of age by the ward, and it is immaterial whether the guardian
dies or is removed, or otherwise ceases to act.
 Nature of a minor's agreement
• Whether the agreement entered into with a minor is void or
voidable?
• The Indian Contract Act does not have any provision to answer this
question. In the absence of any statutory provision, there had been
controversy on this point. The controversy was set at rest by the decision
of the Privy Council in Mohori Bibee v. Dharmodas Ghose, 1903.
• The Privy Council in this case held that, the law of estopple as stated in
S.115 of the Indian Evidence Act, was not applicable to the present case,
because in this case the statement (about age) was made to a person
who knew the real facts and was not mislead by the untrue statement.

• Cont..
• It was further observed that,
• “There can be no estopple where the truth of the
matter is known to both the parties, and their
Lordships hold that, a false representation made to a
person who knows it to be false, is not such a fraud as
to take away the privilege of infancy.”
Ratification of the minor's agreement
• A minor's agreement being void ab initio, it is incapable
of being validated by a subsequent ratification after the
minor has attained the age of majority.
• The consideration furnished in respect of a transaction
during minority cannot be considered to be a valid
consideration for a subsequent promise after attaining
majority and thus no ratification is possible of a
promise made by a person during his minority. A
contract by a minor is void.
• In Suraj Narain v. Sukhu Aheer,( A.I.R. 1928 Al. 440) a
person borrowed some money during his minority and then
made a fresh promise, after attaining majority, to pay that sum
plus interest thereon. The question before the Allahabad High
Court was, whether consideration received by a person during
his minority can be good consideration for a fresh promise by
him after attaining majority.
• lt was held by a majority of 2:1, that the consideration received
by a person during his minority cannot be called consideration
in its strict term within the meaning of sec. 2(d), and there is no
question of that consideration being considered valid for a fresh
promise. The promisor, therefore, could not be made liable in
respect of such a promise.
12. What is a sound mind for the purposes of
contracting
• A person is said to be of sound mind for the purpose of
making a contract, if, at the time when he makes it, he is
capable of understanding it and of forming a rational
judgment as to its effect upon his interests.
• A person who is usually of unsound mind, but occasionally
of sound mind, may make a contract when he is of sound
mind.
• A person who is usually of sound mind, but occasionally of
unsound mind, may not make a contract when he is of
unsound mind.
• If a person who is usually of unsound mind is proved
to be having lucid intervals, he is capable of making a
valid contract during such intervals.
• If such a person makes a contract or executes a
document, the burden of proving that at the time of
such a transaction he was of unsound mind lies on the
person who challenges the validity of the transaction.
• In Indar Singh v. Parmeshwardhari Singh (A.I.R. 1957 Pat. 498) , it
has been held that " a person may to all appearances, behave
in a normal fashion, but, at the same time, he may be
incapable of forming a judgment of his own, as to whether the
act he is about to do is to his interest or not, and to the
contracts of such person the law gives protection.“

• Black's Law Dictionary says :"As a ground for voiding or

annulling a contract or conveyance, insanity does not mean a
total deprivation of reason, but an inability, from defect of
perception, memory and judgment, to do the act in question or
to understand its nature and consequences."
(Black's Law Dictionary, Sixth Edition, Page 795).
End of slides
Contract Act
Cont…
13. “Consent” defined
• Two or more persons are said to consent when
they agree upon the same thing in the same
sense.
 14. “Free consent” defined
• Consent is said to be free when it is not caused by—
• (1) coercion, as defined in section 15, or
• (2) undue influence, as defined in section 16, or
• (3) fraud, as defined in section 17, or
• (4) misrepresentation, as defined in section 18, or
• (5) mistake, subject to the provisions of sections 20, 21 and
22.
• Consent is said to be so caused when it would not have been
given but for the existence of such coercion, undue
influence, fraud, misrepresentation or mistake.
15. “Coercion” defined
• “Coercion” is the committing, or threatening 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.
• Explanation.—It is immaterial whether the Indian
Penal Code is or is not in force in the place where the
coercion is employed.
• In Ranganayakamma v. Alwar Setti ( I.L.R. (1889) 13
Mad. 214), the question before the Madras High Court
was regarding the validity of the adoption of a boy by a
widow aged 13 years. On the death of her husband,
the husband's dead body was not allowed to be
removed from her house for cremation, by the relatives
of the adopted boy until she adopted the boy.
• It was held that the adoption was not binding on the
widow as her consent had been obtained by Coercion.
16.“Undue influence” defined
• (1) A contract is said to be induced by “undue influence” where the
relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
• (2) In particular and without prejudice to the generality of the
foregoing principle, a person is deemed to be in a position to
dominate the will of another—
• (a) where he holds a real or apparent authority over the other, or
where he stands in a fiduciary relation to the other; or
• (b) where he makes a contract with a person whose mental capacity
is temporarily or permanently affected by reason of age, illness, or
mental or bodily distress.
• (3) Where a person who is in a position to dominate
the will of another, enters into a contract with him,
and the transaction appears, on the face of it or on
the evidence adduced, to be unconscionable, the
burden of proving that such contract was not induced
by undue influence shall lie upon the person in a
position to dominate the will of the other.
• (1) Real or apparent authority
An employer may be deemed to be having authority over his
employee, an income-tax authority over the assessee, a police or a
judicial officer over the accused, or a licensing authority over the
licencee.

• (2) Fiduciary relation

Fiduciary relation means a relationship of confidence and trust. If a
person betrays the confidence and trust reposed in him and gains an
unfair advantage over the other party in any contract, the suffering
party has an option to avoid the contract.
• Examples of fiduciary relationship are solicitor and client, spiritual
adviser and devotee, medical attendant and patient, husband and
wife, master and servant, etc.
• (3) Person in mental or bodily distress
A person's mental capacity may have been affected on account of his
old age, illness, or mental or bodily distress, and there is every
possibility that such a person's position may be exploited and unfair
advantage taken in such a situation. The law tries to afford protection
to such persons also.

In cases of fiduciary relationship, if the person in a dominant position

has gained undue advantage in any transaction, the burden of proof
lies on such a person to show that the transaction was without undue
influence, and in the absence of such a proof the transaction is liable
to be cancelled.
• In Merci Celine D'Souza v. Renie Fernandez ( A.I.R. 1998 Kerala 280) the plaintiff, a
mentally infirm person, incapable of protecting his interest and totally
dependant on the defendants for his existence, gifted his property in
favour of the defendants. It was found that defendants had obtained an
unfair advantage and he gift deed was not attested by the two witnesses
as required by law. It was held that the settlement deed of the property
was liable to be set aside on the ground of undue influence.

In Sethani v. Bhanna,(A.I.R. 1993 S.C. 956) a sale deed of her property was
executed by an old, blind, illiterate and a tribal woman in favour of the
respondent, on whom she was totally dependent. There was no evidence of
consideration having passed at the time of sale, or the respondent having
proved the absence of undue influence. The respondent was held bound to
return the advantage obtained by him in this case.
17. “Fraud” defined
• “Fraud” means and includes any of the following acts
committed by a party to a contract, or with his
connivance, or by his agent , with intent to deceive
another party thereto or his agent, or to induce him
to enter into the contract:—
• (1) the suggestion, as 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.
• Explanation.—Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud,
unless the circumstances of the case are such that, regard
being had to them, it is the duty of the person keeping
silence to speak, or unless his silence is, in itself, equivalent
to speech.
• In Shri Krishan v. Kurukshetra University, (A.I.R. 1976 S.C. 376)
Shri Krishan, a candidate for the LL.B. Part I examination
of the University did not complete the prescribed number
of lectures which could make him eligible for appearing in
the examination. He, however, filled the examination form
for appearing in the examination without mentioning the
fact that his attendance was short. The University
authorities could have discovered the truth by proper
scrutiny. The University wanted to cancel the candidature
of the candidate on the ground of fraud. It was held that
there was no fraud in this case as the candidate had just
kept silent as to certain facts and further, the University
authorities could have discovered the truth with
ordinary diligence.
18. “Misrepresentation” defined
• “Misrepresentation” means and includes—
• (1) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true, though
he believes it to be true;
• (2) any breach of duty which, without an intent to deceive, gains an
advantage to the person committing it, or any one claiming under
him; by misleading another to his prejudice, or to the prejudice of
any one claiming under him;
• (3) causing, however innocently, a party to an agreement, to make a
mistake as to the substance of the thing which is the subject of the
agreement.
• Noorudeen v. Umairathu Beevi (A.I.R. 1998 Ker. 171)
The defendant, who was plaintiff's son got a
document executed from the plaintiff describing it
as hypothecation deed of the plaintiff's property. In
fact by fraud and misrepresentation the document
executed was a sale deed of the plaintiff's property.
The plaintiff was a blind man and the sale was for
an inadequate consideration. The possession of the
property was also not given to the defendant.
It was held that such a deed, which was got
executed by fraud and misrepresentation, was
rightly set aside.
19. Voidability of agreements without free
consent
• When consent to an agreement is caused by coercion, fraud
or misrepresentation, the agreement is a contract voidable
at the option of the party whose consent was so caused.

• A party to a contract whose consent was caused by fraud or

misrepresentation, may, if he thinks fit, insist that the
contract shall be performed, and that he shall be put in the
position in which he would have been if the representations
made had been true.
• Exception.—If such consent was caused by
misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not
voidable, if the party whose consent was so caused had the
means of discovering the truth with ordinary diligence.

• Explanation.—A fraud or misrepresentation which did not

cause the consent to a contract of the party on whom such
fraud was practised, or to whom such misrepresentation
was made, does not render a contract voidable.
 19A. Power to set aside contract induced by undue
influence.
• When consent to an agreement is caused by undue
influence, the agreement is a contract voidable at the option
of the party whose consent was so caused.

• Any such contract may be set aside either absolutely or, if

the party who was entitled to avoid it has received any
benefit thereunder, upon such terms and conditions as to
the Court may seem just.
20.Agreement void where both parties are under
mistake as to matter of fact
• Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement,
the agreement is void.
• Explanation.—An erroneous opinion as to the value of the
thing which forms the subject-matter of the agreement, is
not to be deemed a mistake as to a matter of fact.
21. Effect of mistakes as to law

• A contract is not voidable because it was caused by a

mistake as to any law in force in India; but a mistake
as to a law not in force in India has the same effect as
a mistake of fact.
22. Contract caused by mistake of one party as to
matter of fact.
• A contract is not voidable merely because it was
caused by one of the parties to it being under a
mistake as to a matter of fact.
• Section 22 caselaw
• In Ayekam Angahal Singh v. The Union of India (A.I.R. 1970
Manipur 16), there was an auction for the sale of fishery
rights and the plaintiff was the highest bidder making a bid
of Rs. 40,000/-. The fishery rights had been auctioned for 3
years. The rent, in fact, was Rs. 40,000/- per year. The
plaintiff sought to avoid the contract on the ground that he
was working under a mistake and he thought that he had
made a bid of Rs. 40,000/-, being the rent for all the three
years.
• It was held that since the mistake was unilateral, the
contract was not affected thereby and the same could not
be avoided.
End of slides
Contract act
Void agreements
S.24.Agreements void, if considerations and
objects unlawful in part

• If any part of a single consideration for one or more

objects, or any one or any part of any one of several
considerations for a single object, is unlawful, the
agreement is void.
• S.25. Agreement without consideration, void, unless it is in writing
and registered, or is a promise to compensate for something done
or is a promise to pay a debt barred by limitation law.
• An agreement made without consideration is void, unless—
• (1) it is expressed in writing and registered under the law for the time
being in force for the registration of documents, and is made on
account of natural love and affection between parties standing in a
near relation to each other ; or unless
• (2) it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do; or unless;
• (3) it is a promise, made in writing and signed by the person to be
charged therewith, or by his agent generally or specially authorized
in that behalf, to pay wholly or in part a debt of which the creditor
might have enforced payment but for the law for the limitation of
suits.
• In any of these cases, such an agreement is a contract.
• Explanation 1.—Nothing in this section shall affect the validity, as
between the donor and donee, of any gift actually made.
• Explanation 2.—An agreement to which the consent of the promisor
is freely given is not void merely because the consideration is
inadequate; but the inadequacy of the consideration may be taken
into account by the Court in determining the question whether the
consent of the promisor was freely given.
S.26. Agreement in restraint of marriage, void.
• Every agreement in restraint of the marriage of any person,
other than a minor, is void.
• An agreement which restricts a person's freedom to marry, or to marry any
person of his choice is against public policy and is void.
• In Lowe v. Peers, the promise by a man in favour of Mrs. Catherine Lowe
that he would not marry any person other than Mrs. Lowe, and a further
promise to pay Mrs. Lowe a sum of £ 2,000 if he married somebody else
was held to be against public policy and void.
This agreement was not in the form of a promise to marry a particular lady
but restrictive agreement containing a promise not to marry anybody else.
Whether the agreement puts a total restraint on the right to marry, or only
a partial restraint imposing a restriction on marrying for a certain period,
or marrying a certain person, the agreement is void.
S.27. Agreement in restraint of trade, void
• Every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind,
is to that extent void.
• Exception 1.—Saving of agreement not to carry on business of which
good-will is sold.
• One who sells the good-will of a business may agree with the buyer
to refrain from carrying on a similar business, within specified local
limits, so long as the buyer, or any person deriving title to the good-
will from him, carries on a like business therein, provided that such
limits appear to the Court reasonable, regard being had to the nature
of the business.
• In Vancouver Malt and Sake Brewing Co. v/s. Vancouver Breweries
Ltd. the appellants had a brewer's licence in respect of their premises
in Vancouver City, under which they could manufacture and sell beer.
They never manufactured or sold beer The only liquor they were
manufacturing was sake, a Japanese liquor made from rice. The
appellants made an agreement with the respondents under which
they purported to sell and assign to the respondents for $15,000 all
the goodwill of their brewer's licence and agreed that they would not
engage in the trade or business of manufacturing or selling beer for a
period of 15 years. The covenant, however, provided that the
appellants were free to continue manufacturing and selling sake.
• The Privy Council held that agreement void for two reasons :

(1) The agreement purported to sell the business of manufacturing

beer, which the appellants had never carried on. There could be no
goodwill of a business which had never been carried on. This only
meant an agreement not to make any competition in future in
manufacturing beer.

(2) The restraint was very wide, restraining the appellants from
manufacturing beer anywhere in the world, and therefore,
unreasonable and void on that ground also.
M/s. Sociedade de Fomento Industrial Ltd. V.
Ravindranath Subraya Kamat (A.I.R. 1999 Bom 158)
• If an agreement between a company and the person
appointed as its advisory stipulates that he would not carry
on business activities similar to those carried on by the
company, the restraint is not void under section 27 of the
Contract Act. However, the restraint will be effective only
during the period of appointment of advisory.
• Zaheer Khan V/s. Percept D Mark (India) Pvt. Ltd.
[A.I.R. 2004 Bom. 362]
• There was contract restricting party to contract his future liberty to
carry on his affair in the manner he liked and with person he chose. It
was held that it was a contract in restraint of trade, hence hit by
Section 27.
Agreement void only to the extent of restraint
• An agreement in restraint of trade is void only to the extent it
imposes restraint. If a part of the agreement does not impose
restraint and the other part does so, the agreement may be void as
regards the second part of it.

• In Har Bilas v. Mahadeo Prasad,(A.I.R. 1931 All. 539) the defendant

agreed to supply a certain quantity of silica sand to the plaintiff every
month. He also agreed not to sell silica sand to four specified
factories. It was held that the whole of the agreement was not void,
it was void only to the extent it restrained the defendant from selling
his surplus silica sand to four specified factories.
S.28.Agreements in restraint of legal proceedings,
void.
• Every agreement—
• (a) by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by
the usual legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus enforce his
rights; or
• (b) which extinguishes the rights of any party thereto, or
discharges any party thereto, from any liability, under or in
respect of any contract on the expiry of a specified period so
as to restrict any party from enforcing his rights, is void to
the extent
• Exception 1.—Saving of contract to refer to arbitration dispute that
may arise.
• This section shall not render illegal a contract, by which two or more
persons agree that any dispute which may arise between them in
respect of any subject or class of subjects shall be referred to
arbitration, and that only the amount awarded in such arbitration
shall be recoverable in respect of the dispute so referred.
• Exception 2.—Saving of contract to refer questions that have
already arisen.
• Nor shall this section render illegal any contract in writing, by which
two or more persons agree to refer to arbitration any question
between them which has already arisen, or affect any provision of
any law in force for the time being as to references to arbitration
• Exception 3.—Saving of a guarantee agreement of a bank or a
financial institution.
• This section shall not render illegal a contract in writing by which any
bank or financial institution stipulate a term in a guarantee or any
agreement making a provision for guarantee for extinguishment of
the rights or discharge of any party thereto from any liability under
or in respect of such guarantee or agreement on the expiry of a
specified period which is not less than one year from the date of
occurring or non-occurring of a specified event for extinguishment or
discharge of such party from the said liability.
• In Hakam Singh v. Gammon (India) Ltd., a clause in the agreement
between the parties provided that the "Court of law in the City of Bombay
alone shall have jurisdiction to adjudicate thereon". The plaintiff filed a suit
at Varanasi, but the same was dismissed in view of the above stated
agreement. The Supreme Court held that the agreement was not opposed
to public policy and it did not contravene section 28, and therefore, the
suit filed at Varanasi was rightly dismissed.
• The position would be different if the Bombay Court has no jurisdiction,
but the parties say that Bombay Court alone can entertain the suit. Such
an agreement is void, because the parties by an agreement cannot confer
jurisdiction on a court which does not in fact exist.
In order that the agreement stipulating that a particular court alone
has jurisdiction is enforceable, it is further necessary that the agreement
should have been properly entered into.
• In Delhi Bottling Co. Ltd. v. Times Guaranty Financials Ltd.
• It has been held that when two courts have jurisdiction parties are
free to vest jurisdiction in one of those courts only. In this case there
was a hire-purchase agreement in respect of supply of commercial
vehicles. The agreement was executed in Bombay. An agreement in
such a case by the parties that in case of any dispute Bombay courts
shall have exclusive jurisdiction. The agreement was held to be valid
and not hit by section 28 of the Contract Act.
• M/s Atlas Export Industries v. Ms Kotak & Co., A.I.R. 1999 S.C. 3286
• If the parties agree under a contract to refer their disputes for
adjudication to the arbitration, the mere fact that the arbitrators are
situated in foreign countries, will not be sufficient to nullify the
arbitration agreement.
S.29. Agreements void for uncertainty.
• Agreements, the meaning of which is not certain, or capable
of being made certain, are void.
• In Kalyan Singh v. Ranjot Singh (A.I.R. 2002 H.P. 180)
• There was an agreement between the plaintiff and the defendant for
the sale of barberry roots to the defendant for a sum of Rs. 37,000/-
there was payment through a cheque for Rs. 37,000/- by the
defendant-purchaser against an alleged undertaking by the
purchaser that he would not enforce the payment of the cheque till
goods were received. The said cheque was dishonoured due to
insufficiency of funds.
The question arose as to whether there was a valid contract against
which payment was made.
It was held that there was uncertainty as regards the period when
amount of the cheque was to be received and hence, the agreement
was void for uncertainty, under section 29.
S.30. Agreements by way of wager void.
• Agreements by way of wager are void; and no suit shall be
brought for recovering anything alleged to be won on any
wager, or entrusted to any person to abide the result of any
game or other uncertain event on which any wager is made.
• The nature of such an agreement has been explained by Hawkins J.
in Carlill v. Carbolic Smoke Ball Co. in the following words:
"A wagering contract is one by which two persons, professing to
hold opposite views touching the issue of a future uncertain event,
mutually agree that, dependent upon the determination of that
event, one shall win from the other, and that other shall pay or hand
over to him, a sum of money or other stake; neither of the
contracting parties having any other interest in that contract than the
sum or stake he will so win or lose, there being no other real
consideration for the making of such contract by either of the parties.
It is essential to a wagering contract that each party may under it
either win or lose, whether he will win or lose being dependent on
the issue of the event, and, therefore, remaining uncertain until that
issue is known. If either of the parties may win but cannot lose, or
may lose but cannot win, it is not a wagering contract."
• Essentials of a wagering agreement
• 1. The parties have opposite views regarding an uncertain event.

• 2. There are chances of gain or loss to the parties on the

determination of the event one way or the other.

• 3. The parties have no other interest except Winning or losing of

bet.
End of slides
Contract Act
Contingent Contracts
• S.31 - A “contingent contract” is a contract to do or
not to do something, if some event, collateral to such
contract, does or does not happen.
S.32. Enforcement of contracts contingent on an
event happening
• Contingent contracts to do or not to do anything if an
uncertain future event happens cannot be enforced by law
unless and until that event has happened.
• If the event becomes impossible, such contracts become
void.
S.33. Enforcement of contracts contingent on an
event not happening
• Contingent contracts to do or not to do anything if an
uncertain future event does not happen can be
enforced when the happening of that event becomes
impossible, and not before.
S.34. When event on which contract is contingent to be
deemed impossible, if it is the future conduct of a living
person
• If the future event on which a contract is contingent is the
way in which a person will act at an unspecified time, the
event shall be considered to become impossible when such
person does anything which renders it impossible that he
should so act within any definite time, or otherwise than
under further contingencies.
S.35.When contracts become void which are contingent on
happening of specified event within fixed time
• Contingent contracts to do or not to do anything if a specified
uncertain event happens within a fixed time become void if, at the
expiration of the time fixed, such event has not happened, or if,
before the time fixed, such event becomes impossible.
• When contracts may be enforced, which are contingent on specified
event not happening within fixed time.
• Contingent contracts to do or not to do anything, if a specified
uncertain event does not happen within a fixed time may be
enforced by law when the time fixed has expired and such event has
not happened or, before the time fixed has expired, if it becomes
certain that such event will not happen.
S.36. Agreement contingent on impossible events void

• Contingent agreements to do or not to do anything, if an

impossible event happens, are void, whether the
impossibility of the event is known or not to the parties to
the agreement at the time when it is made.
End of slides
Contract Act
 Contracts which must be performed
• S.37. Obligation of parties to contracts.
• The parties to a contract must either perform, or offer to
perform, their respective promises, unless such
performance is dispensed with or excused under the
provisions of this Act, or of any other law.
• Promises bind the representatives of the promisors in case
of the death of such promisors before performance, unless a
contrary intention appears from the contract.
• Jai Durga Finvest Pvt.Ltd Vs. State of Haryana (A.I.R. 2004 S.C.
1484)
• Where in a clause it was provided that the contractor
could not seek relief in payment of contract money on plea
of non-extraction of sand.
Such clause was incorporated in agreement as per Rules.
The contractor had failed to carry out mining operations
as per terms of agreement by reasons of omission on part
of State authorities. Forfeitures of security amount was
challenged by the contractor. Held, that the plea that
contractor could not object to forfeiture since he had
entered into contract with open eyes was not tenable.
• S.38. Effect of refusal to accept offer of performance.—
• 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, nor does he thereby lose his rights under the
contract.
• Every such offer must fulfil the following conditions:—
• (1) it must be unconditional;
• (2) it must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a
reasonable opportunity of ascertaining that the person by whom it is
made is able and willing there and then to do the whole of what he is
bound by his promise to do;
• (3) if the offer is an offer to deliver anything to the promisee, the
promisee must have a reasonable opportunity of seeing that the thing
offered is the thing which the promisor is bound by his promise to
deliver.

• E.g. - A contracts to deliver to B at his warehouse, on the 1st March,

1873 , 100 bales of cotton of a particular quality. In order to make an
offer of a performance with the effect stated in this section, A must
bring the cotton to B's warehouse on the appointed day under such
circumstances that B may have a reasonable opportunity of satisfying
himself that the thing offered is cotton of the quality contracted for
and that there are 100 bales.

• An offer to one of several joint promisee has the same legal

consequences as an offer to all of them.
• In Demby Hamilton & Co. v. Burden ((1949) 1 All. E.R. 435),
there was a contract for the supply of 30 tons of apple juice.
The juice was tendered but the buyer refused to take
delivery of some of the instalments. At the time of tender,
the juice was fresh but subsequently it became putrid. It
was held that the buyer was at fault in not taking the
delivery of the goods when tendered, and, therefore, he
was liable for the loss caused by the juice becoming putrid.
S.39. Effect of refusal of party to perform promise wholly.
When a party to a contract has refused to perform, or disabled himself
from performing, his promise in its entirety, the promisee may put an
end to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance.

S.40.Person by whom promise is to be performed.

If it appears from the nature of the case that it was the intention of the
parties to any contract that any promise contained in it should be
performed by the promisor himself, such promise must be performed
by the promisor. In other cases, the promisor or his representatives
may employ a competent person to perform it.
• S.41. Effect of accepting performance from third person.
• When a promisee accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor.

• S.42. Devolution of joint liabilities.

• When two or more persons have made a joint promise, then, unless
a contrary intention appears by the contract, all such persons, during
their joint lives, and, after the death of any of them, his
representative jointly with the survivor or survivors, and, after the
death of the last survivor, the representatives of all jointly, must fulfil
the promise
• S.43.Any one of joint promisors may be compelled to perform.
• When two or more persons make a joint promise, the promisee may,
in the absence of express agreement to the contrary, compel any
[one or more] of such joint promisors to perform the whole of the
promise.
• Each promisor may compel contribution.—Each of two or more joint
promisors may compel every other joint promisor to contribute
equally with himself to the performance of the promise, unless a
contrary intention appears from the contract.
• Sharing of loss by default in contribution.—If any one of two or
more joint promisors makes default in such contribution, the
remaining joint promisors must bear the loss arising from such
default in equal shares.
• Explanation.—Nothing in this section shall prevent a surety from
recovering from his principal, payments made by the surety on
behalf of the principal, or entitle the principal to recover anything
from the surety on account of payments made by the principal.
• S.44.Effect of release of one joint promisor.
• Where two or more persons have made a joint promise, a release of
one of such joint promisors by the promisee does not discharge the
other joint promisor or joint promisors; neither does it free the joint
promisors so released from responsibility to the other joint promisor
or joint promisors.
• S.45. Devolution of joint rights.
• When a person has made a promise to two or more persons jointly,
then, unless a contrary intention appears from the contract, the right
to claim performance rests, as between him and them, with them
during their joint lives, and, after the death of any of them, with the
representative of such deceased person jointly with the survivor or
survivors, and, after the death of the last survivor, with the
representatives of all jointly
Time and place for performance
• S.46. Time for performance of promise, when no
application is to be made and no time is specified.
• Where, by the contract, a promisor is to perform his promise
without application by the promisee, and no time for
performance is specified, the engagement must be
performed within a reasonable time.
• Explanation.—The question “what is a reasonable time” is,
in each particular case, a question of fact.
• S.47. Time and place for performance of promise, where
time is specified and no application to be made.
• When a promise is to be performed on a certain day, and
the promisor has undertaken to perform it without
application by the promisee, the promisor may perform it at
any time during the usual hours of business on such day and
at the place at which the promise ought to be performed.
• S.48. Application for performance on certain day to be at proper
time and place.
• When a promise is to be performed on a certain day, and the
promisor has not undertaken to perform it without application by the
promisee, it is the duty of the promisee to apply for performance at a
proper place and within the usual hours of business.

• Explanation.—The question “what is a proper time and place” is, in

each particular case, a question of fact.
• S.49. Place for performance of promise, where no
application to be made and no place fixed for performance.
• When a promise is to be performed without application by
the promisee, and no place is fixed for the performance of it,
it is the duty of the promisor to apply to the promisee to
appoint a reasonable place for the performance of the
promise, and to perform it at such place.
• S.50. Performance in manner or at time prescribed or
sanctioned by promisee.

• The performance of any promise may be made in any

manner, or at any time which the promisee prescribes or
sanctions.
Contract Act
Performance of reciprocal promises
• S.51.Promisor not bound to perform, unless reciprocal
promisee ready and willing to perform.
• When a contract consists of reciprocal promises to be
simultaneously performed, no promisor need perform his
promise unless the promisee is ready and willing to perform
his reciprocal promise.
S.52.Order of performance of reciprocal
promises.
• Where the order in which reciprocal promises are to be
performed is expressly fixed by the contract, they shall be
performed in that order; and where the order is not
expressly fixed by the contract, they shall be performed in
that order which the nature of the transaction requires.
S.53. Liability of party preventing event on which the
contract is to take effect.
• When a contract contains reciprocal promises, and one
party to the contract prevents the other from performing his
promise, the contract becomes voidable at the option of the
party so prevented; and he is entitled to compensation from
the other party for any loss which he may sustain in
consequence of the non-performance of the contract.
S.54. Effect of default as to that promise which should
be first performed, in contract consisting of reciprocal
promises
• When a contract consists of reciprocal promises, such that
one of them cannot be performed, or that its performance
cannot be claimed till the other has been performed, and
the promisor of the promise last mentioned fails to perform
it, such promisor cannot claim the performance of the
reciprocal promise, and must make compensation to the
other party to the contract for any loss which such other
party may sustain by the non-performance of the contract.
S.55. Effect of failure to perform at fixed time, in
contract in which time is essential
• When a party to a contract promises to do a certain thing at or
before a specified time, or certain things at or before specified times,
and fails to do any such thing at or before the specified time, the
contract, or so much of it as has not been performed, becomes
voidable at the option of the promisee, if the intention of the parties
was that time should be of the essence of the contract.
• Effect of such failure when time is not essential.
• If, it was not the intention of the parties that time should be
of the essence of the contract, the contract does not
become voidable by the failure to do such thing at or before
the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to
him by such failure.
• Effect of acceptance of performance at time other than
that agreed upon.
• If, in case of a contract voidable on account of the
promisor’s failure to perform his promise at the time agreed,
the promisee accepts performance of such promise at any
time other than that agreed, the promisee cannot claim
compensation for any loss occasioned by the non-
performance of the promise at the time agreed, unless, at
the time of such acceptance, he gives notice to the promisor
of his intention to do so.
• In Suraj Singh v. Nathi Bai,( AIR 2002 Mad. 352) the
respondent No. 1 was compelled to sell the suit house to
repay the loan which she had taken from others and also
for meeting her day-to-day living expenses. The agreement
stipulated that the sale deed must be executed by 5.3.1983.
• It was held that the normal presumption of time not being
the essence of the contract in sale of immovable property
was dislodged in the instant case, and the time in this case
was the essence of the contract. On default of the buyer to
fulfil the promise by the promised date, the defendant No.l
was held to be justified in treating the contract as having
come to an end and selling the property to other persons.
S.56. Agreement to do impossible act.
• An agreement to do an act impossible in itself is void.
• Contract to do an act afterwards becoming impossible or unlawful.
• A contract to do an act which, after the contract is made, becomes
impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful.
• Compensation for loss through non-performance of act known to be
impossible or unlawful.
• Where one person has promised to do something which he knew, or, with
reasonable diligence, might have known, and which the promisee did not
know, to be impossible or unlawful, such promisor must make
compensation to such promisee for any loss which such promisee sustains
through the non performance of the promise.
The doctrine of frustration
• When the performance of the contract becomes impossible,
the
purpose which the parties have in mind is frustrated. If
the performance becomes impossible, because of a
supervening event, the promisor is excused from the
performance of the contract. This is known as doctrine of
frustration under English law, and is covered by section 56
of the Indian Contract Act.
• The basis of the doctrine of frustration was explained by
Mukherjea, J. In the Supreme Court decision of Satyabrata
Ghose v.
Mugneeram ( A.I.R. 1954 S.C. 47) in the following words:-
• “ The essential idea upon which the doctrine (of
frustration) is based is that of impossibility of performance
of the contract; in fact impossibility and frustration are
often used as interchangeable expressions. The changed
circumstances make the performance of the contract
impossible and the parties are absolved from the further
performance of it as they did not promise to perform an
impossibility... The doctrine of frustration is really an
aspect or part of the law of discharge of contract by reason
of supervening impossibility or illegality of the act agreed
to be done and hence comes within the purview of section
56 of the Contract Act.”
S.57.Reciprocal promise to do things legal, and also
other things illegal.
• Where persons reciprocally promise, firstly, to do certain
things which are legal, and, secondly, under specified
circumstances, to do certain other things which are illegal,
the first set of promises is a contract, but the second is a
void agreement.
• S.58. Alternative promise, one branch being illegal.

• In the case of an alternative promise, one branch of

which is legal and the other illegal, the legal branch
alone can be enforced.
S.59.Application of payment where debt to be
discharged is indicated.
• Where a debtor, owing several distinct debts to one person,
makes a payment to him, either with express intimation, or
under circumstances implying, that the payment is to be
applied to the discharge of some particular debt, the
payment, if accepted, must be applied accordingly.
S.60. Application of payment where debt to be
discharged is not indicated.
• Where the debtor has omitted to intimate and there are no
other circumstances indicating to which debt the payment is
to be applied, the creditor may apply it at his discretion to
any lawful debt actually due and payable to him from the
debtor, whether its recovery is or is not barred by the law in
force for the time being as to the limitation of suits.
S.61. Application of payment where neither party
appropriates.
• Where neither party makes any appropriation, the payment
shall be applied in discharge of the debts in order of time,
whether they are or are not barred by the law in force for
the time being as to the limitation of suits. If the debts are
of equal standing, the payment shall be applied in discharge
of each proportionably.
 S.62. Effect of novation, rescission, and
alteration of contract.
• If the parties to a contract agree to substitute a new
contract for it, or to rescind or alter it, the original contract,
need not be performed
• In Wasoo Enterpriser v. J.J. Oil Mills, (AIR 1968 Guj. 57)
there was a contract for the
supply of 50 tons of groundnut oil with a stipulation that
the shipment
must be affected during August, 1954. By a subsequent
agreement, the time of supply was extended upto 10th
September, 1954. On the failure of the sellers to send the
goods by the stipulated date, the buyers were held entitled
to reject the goods.
• It was observed that "a stipulation as to time of shipment
contained in a commercial contract is a part of the
description of the goods sold and is a condition precedent
which must be fulfilled.”
• If the contract mentions the date of the shipment as well
as the name of the ship, both are deemed to be essential
conditions for the fulfilment of the contract.
S.63. Promisee may dispense with or remit
performance of promisee.
• Every promisee may dispense with or remit, wholly or in
part, the performance of the promisee made to him, or may
extend the time for such performance ,or may accept
instead of it any satisfaction which he thinks fit.
S.64. Consequences of rescission of voidable
contract.
• When a person at whose option a contract is voidable
rescinds it, the other party thereto need not perform any
promise therein contained in which he is promisor.
• The party rescinding a voidable contract shall, if he have
received any benefit thereunder from another party to such
contract, restore such benefit, so far as may be, to the
person from whom it was received.
S.65. Obligation of person who has received
advantage under void agreement, or contract that
becomes void.
• When an agreement is discovered to be void, or when a
contract becomes void, any person who has received any
advantage under such agreement or contract is bound to
restore it, or to make compensation for it to the person from
whom he received it.
• S.66. Mode of communicating or revoking rescission of voidable
contract.—
• The rescission of a voidable contract may be communicated or
revoked in the same manner, and subject to the same rules, as apply
to the communication or revocation of a proposal.

• S.67. Effect of neglect of promisee to afford promisor reasonable

facilities for performance.—
• If any promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise, the promisor is excused
by such neglect or refusal as to any non-performance caused thereby.
End of slides
Contract Act
 CERTAIN RELATIONS RESEMBLING THOSE
CREATED BY CONTRACT
• S.68. Claim for necessaries supplied to person incapable of
contracting, or on his account.
• If a person, incapable of entering into a contract, or any one whom
he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the
property of such incapable person
• S.69.Reimbursement of person paying money due by another, in
payment of which he is interested.
• A person who is interested in the payment of money which another
is bound by law to pay, and who therefore pays it, is entitled to be
reimbursed by the other.
• S.70.Obligation of person enjoying benefit of non-gratuitous act.

• Where 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 benefit thereof, the latter is bound to
make compensation to the former in respect of, or to restore, the
thing so done or delivered
• S.71.Responsibility of finder of goods.
• A person who finds goods belonging to another, and takes them into
his custody, is subject to the same responsibility as a bailee .

• S.72. Liability of person to whom money is paid, or thing delivered,

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.
 CONSEQUENCES OF BREACH OF CONTRACT
(remoteness of damage)
• S.73.Compensation for loss or damage caused by breach of
contract.
• When a contract has been broken, the party who suffers by such
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from such
breach, or which the parties knew, when they made the contract, to
be likely to result from the breach of it. Such compensation is not to
be given for any remote and indirect loss or damage sustained by
reason of the breach.
• The statement of Alderson B, in the case of Hadley v.
Baxendale is considered to be the basis of the law to
determine whether the damage is the proximate or the
remote consequence of the breach of contract,
"Where two parties have made a contract, which one of
them hasbroken, the damages which the other party ought
to receive inrespect of such breach of contract should be
such as may fairlyand reasonably be considered either
arising naturally, i.e., accordingto the usual course of
things, from such breach of contract itself,or such as may
reasonably be supposed to have been in the
contemplation of both parties, at the time they made the
contract,as the probable result of the breach of it."
• Compensation for failure to discharge obligation
resembling those created by contract.
• When an obligation resembling those created by contract has been
incurred and has not been discharged, any person injured by the
failure to discharge it is entitled to receive the same compensation
from the party in default, as if such person had contracted to
discharge it and had broken his contract.
• Explanation—In estimating the loss or damage arising from a breach
of contract, the means which existed of remedying the
inconvenience caused by the non-performance of the contract must
be taken into account.
End of slides
Contract Act
• S.74. Compensation for breach of contract where penalty
stipulated for.
• When a contract has been broken, if a sum is named in the contract
as the amount to be paid in case of such breach, or if the contract
contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage
or loss is proved to have been caused thereby, to receive from the
party who has broken the contract reasonable compensation not
exceeding the amount so named or, as the case may be, the penalty
stipulated for.
• Explanation.—A stipulation for increased interest from the date of
default may be a stipulation by way of penalty.
• Exception.—When any person enters into any bail-bond,
recognizance or other instrument of the same nature, or, under the
provisions of any law, or under the orders of the Central Government
or of any State Government, gives any bond for the performance of
any public duty or act in which the public are interested, he shall be
liable, upon breach of the condition of any such instrument, to pay
the whole sum mentioned therein.
• Explanation.—A person who enters into a contract with Government
does not necessarily thereby undertake any public duty, or promise
to do an act in which the public are interested.
• In M/s. Ganga Maruthi v. Nagaraj (A.I.R. 1998 Kant. 407), the plaintiff,
a dealer in television sets, sold a black and white T.V. set to the
defendant on 6.2.90 on credit and the defendant agreed to pay for
the same in 36 equal monthly instalments of Rs.236/- per month and
Rs.100/- for every default in payment of instalments. The defendant
paid only 5 instalments and did not pay anything thereafter inspite of
repeated demands. The plaintiff filed a suit for the recovery of
penalty of Rs. 3100/-, i.e., Rs.100/- for default of each of the 31
remaining instalments, apart from the amount of instalment
due.
It was held that keeping the provision of section 74 in view, the
plaintiff may be awarded interest @ Rs. 10/- for every instalment, i.e.,
a total of Rs. 310/- only, apart from the amount agreed to be paid by
31 remaining instalments.
• S.75.Party rightfully rescinding contract, entitled to compensation.
• A person who rightfully rescinds a contract is entitled to
compensation for any damage which he has sustained through the
non-fulfilment of the contract.
THE SPECIFIC RELIEF ACT, 1963
• S.4. Specific relief to be granted only for enforcing individual civil
rights and not for enforcing penal laws.
• Specific relief can be granted only for the purpose of enforcing
individual civil rights and not for the mere purpose of enforcing a
penal law.
SPECIFIC PERFORMANCE OF CONTRACTS
• S.9. Defences respecting suits for relief based on
contract.
• Except as otherwise provided herein where any relief
is claimed under this Chapter in respect of a contract,
the person against whom the relief is claimed may
plead by way of defence any ground which is
available to him under any law relating to contracts.
CONTRACTS WHICH CAN BE SPECIFICALLY ENFORCED
• S.11. Cases in which specific performance of contracts
connected with trusts enforceable.
• (1) Except as otherwise provided in this Act, specific
performance of a contract shall, be enforced when the act
agreed to be done is in the performance wholly or partly of
a trust.
• (2) A contract made by a trustee in excess of his powers or in
breach of trust cannot be specifically enforced.
• S.12. Specific performance of part of contract.
• (1) Except as otherwise hereinafter provided in this section, the court
shall not direct the specific performance of a part of a contract.
• (2) Where a party to a contract is unable to perform the whole of his
part of it, but the part which must be left unperformed be a only a
small proportion to the whole in value and admits of compensation
in money, the court may, at the suit of either party, direct the specific
performance of so much of the contract as can be performed, and
award compensation in money for the deficiency.
• (3) Where a party to a contract is unable to perform the
whole of his part of it, and the part which must be left
unperformed either—
• (a) forms a considerable part of the whole, though admitting
of compensation in money; or
• (b) does not admit of compensation in money; he is not
entitled to obtain a decree for specific performance; but the
court may, at the suit of the other party, direct the party in
default to perform specifically so much of his part of the
contract as he can perform, if the other party—
• (i) in a case falling under clause (a), pays or has paid the
agreed consideration for the whole of the contract reduced
by the consideration for the part which must be left
unperformed and in a case falling under clause (b) pays or
has paid the consideration for the whole of the contract
without any abatement; and
• (ii) in either case, relinquishes all claims to the performance
of the remaining part of the contract and all right to
compensation, either for the deficiency or for the loss or
damage sustained by him through the default of the
defendant.
• (4) When a part of a contract which, taken by itself, can and
ought to be specifically performed, stands on a separate and
independent footing from another part of the same contract
which cannot or ought not to be specifically performed the
court may direct specific performance of the former part.
• Explanation.—For the purposes of this section, a party to a
contract shall be deemed to be unable to perform the whole
of his part of it if a portion of its subject-matter existing at
the date of the contract has ceased to exist at the time of its
performance.
CONTRACTS, WHICH CANNOT BE SPECIFICALLY ENFORCED
• S.14. Contracts not specifically enforceable.
• The following contracts cannot be specifically enforced, namely:—
• (a) where a party to the contract has obtained substituted
performance of contract in accordance with the provisions of section
20;
• (b) a contract, the performance of which involves the performance of
a continuous duty which the court cannot supervise;
• (c) a contract which is so dependent on the personal qualifications of
the parties that the court cannot enforce specific performance of its
material terms; and
• (d) a contract which is in its nature determinable.
End of slides
Contract Act
PERSONS FOR OR AGAINST WHOM CONTRACTS MAY
BE SPECIFICALLY ENFORCED
• S.15. Who may obtain specific performance.—
• Except as otherwise provided by this Chapter, the
specific performance of a contract may be obtained
by—
• (a) any party thereto;
• (b) the representative in interest or the principal, of
any party thereto:
• Provided that where the learning, skill, solvency or any
personal quality of such party is a material ingredient in the
contract, or where the contract provides that his interest
shall not be assigned, his representative in interest or his
principal shall not be entitled to specific performance of the
contract, unless such party has already performed his part
of the contract, or the performance thereof by his
representative in interest, or his principal, has been
accepted by the other party;
• (c) where the contract is a settlement on marriage, or a
compromise of doubtful rights between members of the
same family, any person beneficially entitled thereunder;
• (d) where the contract has been entered into by a tenant for life in
due exercise of a power, the remainderman;
• (e) a reversioner in possession, where the agreement is a covenant
entered into with his predecessor in title and the reversioner is
entitled to the benefit of such covenant;
• (f) a reversioner in remainder, where the agreement is such a
covenant, and the reversioner is entitled to the benefit thereof and
will sustain material injury by reason of its breach;
• (fa) when a limited liability partnership has entered into a contract
and subsequently becomes amalgamated with another limited
liability partnership, the new limited liability partnership which arises
out of the amalgamation.
• (g) when a company has entered into a contract and
subsequently becomes amalgamated with another company,
the new company which arises out of the amalgamation;
• (h) when the promoters of a company have, before its
incorporation, entered into a contract for the purposes of
the company, and such contract is warranted by the terms of
the incorporation, the company:
• Provided that the company has accepted the contract and
has communicated such acceptance to the other party to
the contract.
• S.20. Substituted performance of contract.—
• (1) Without prejudice to the generality of the provisions
contained in the Indian Contract Act, and, except as
otherwise agreed upon by the parties, where the contract is
broken due to non-performance of promise by any party,
the party who suffers by such breach shall have the option
of substituted performance through a third party or by his
own agency, and, recover the expenses and other costs
actually incurred, spent or suffered by him, from the party
committing such breach.
• (2) No substituted performance of contract under sub-
section (1) shall be undertaken unless the party who suffers
such breach has given a notice in writing, of not less than
thirty days, to the party in breach calling upon him to
perform the contract within such time as specified in the
notice, and on his refusal or failure to do so, he may get the
same performed by a third party or by his own agency:
• Provided that the party who suffers such breach shall not be
entitled to recover the expenses and costs under sub-
section (1) unless he has got the contract performed
through a third party or by his own agency
• (3) Where the party suffering breach of contract has got the
contract performed through a third party or by his own
agency after giving notice under sub-section (1), he shall not
be entitled to claim relief of specific performance against
the party in breach.
• (4) Nothing in this section shall prevent the party who has
suffered breach of contract from claiming compensation
from the party in breach
RECTIFICATION OF INSTRUMENTS
• S.26. When instrument may be rectified.
• (1) When, through fraud or a mutual mistake of the parties a contract
or other instrument in writing [not being the articles of association of
a company to which the Companies Act, 1956, applies] does not
express their real intention, then—
• (a) either party or his representative in interest may institute a suit to
have the instrument rectified; or
• (b) the plaintiff may, in any suit in which any right arising under the
instrument is in issue, claim in his pleading that the instrument be
rectified; or
• (c) a defendant in any such suit as is referred to in clause (b), may, in
addition to any other defence open to him, ask for rectification of the
instrument.
• (2) If, in any suit in which a contract or other instrument is
sought to be rectified under sub-section (1), the court finds
that the instrument, through fraud or mistake, does not
express the real intention of the parties, the court may in its
discretion, direct rectification of the instrument so as to
express that intention, so far as this can be done without
prejudice to rights acquired by third persons in good faith
and for value.
• (3) A contract in writing may first be rectified, and then if
the party claiming rectification has so prayed in his pleading
and the court thinks fit, may be specifically enforced.
• (4) No relief for the rectification of an instrument shall be
granted to any party under this section unless it has been
specifically claimed:
• Provided that where a party has not claimed any such relief
in his pleading, the court shall, at any stage of the
proceeding, allow him to amend the pleading on such terms
as may be just for including such claim.
INJUNCTIONS GENERALLY
• S.36. Preventive relief how granted.—Preventive relief is granted at
the discretion of the court by injunction, temporary or perpetual.
• S.37. Temporary and perpetual injunctions.
• (1) Temporary injunctions are such as are to continue until a specific
time, or until the further order of the court, and they maybe granted
at any stage of a suit, and are regulated by the Code of Civil
Procedure, 1908.
• (2) A perpetual injunction can only be granted by the decree made at
the hearing and upon the merits of the suit; the defendant is thereby
perpetually enjoined from the assertion of a right, or from the
commission of an act, which would be contrary to the rights of the
plaintiff.
• S.38. Perpetual injunction when granted.
• (1) Subject to the other provisions contained in or referred to by this
Chapter, a perpetual injunction may be granted to the plaintiff to
prevent the breach of an obligation existing in his favour, whether
expressly or by implication.
• (2) When any such obligation arises from contract, the court shall be
guided by the rules and provisions contained in Chapter II.
• (3) When the defendant invades or threatens to invade the plaintiff’s
right to, or enjoyment of, property, the court may grant a perpetual
injunction in the following cases, namely:— (a) where the defendant
is trustee of the property for the plaintiff;
• (b) where there exists no standard for ascertaining the
actual damage caused, or likely to be caused, by the
invasion;
• (c) where the invasion is such that compensation in money
would not afford adequate relief;
• (d) where the injunction is necessary to prevent a
multiplicity of judicial proceedings.
• S.39. Mandatory injunctions.
• When, to prevent the breach of an obligation, it is necessary to
compel the performance of certain acts which the court is capable of
enforcing, the court may in its discretion grant an injunction to
prevent the breach complained of, and also to compel performance
of the requisite acts.
• S.41. Injunction when refused.—
• An injunction cannot be granted—
• (a) to restrain any person from prosecuting a judicial proceeding
pending at the institution of the suit in which the injunction is sought,
unless such restraint is necessary to prevent a multiplicity of
proceedings;
• (b) to restrain any person from instituting or prosecuting any
proceeding in a court not sub-ordinate to that from which the
injunction is sought;
• (c) to restrain any person from applying to any legislative body;
• (d) to restrain any person from instituting or prosecuting any
proceeding in a criminal matter;
• (e) to prevent the breach of a contract the performance of which
would not be specifically enforced;
• (f) to prevent, on the ground of nuisance, an act of which it is not
reasonably clear that it will be a nuisance;
• (g) to prevent a continuing breach in which the plaintiff has
acquiesced;
• (h) when equally efficacious relief can certainly be obtained by any
other usual mode of proceeding except in case of breach of trust;
• (ha) if it would impede or delay the progress or completion of any
infrastructure project or interfere with the continued provision of
relevant facility related thereto or services being the subject matter
of such project.
• (i) when the conduct of the plaintiff or his agents has been such as
to disentitle him to be the assistance of the court; (j) when the
plaintiff has no personal interest in the matter.
End of slides