BUSINESS LAWS – SYLLABUS

UNIT-I Contract Act

Formation- Terms of Contract- Forms of Contract- Offer and Acceptance- Consideration.

UNIT-II Free Consent

Persons Incompetent to Contract- Free Consent- Agreements with Unlawful Object- Wagering Agreements
and Contingent Contracts.

UNIT-III Performance of Contract

Discharge- Remedies for Breach of Contract- Quasi Contract.

UNIT-IV Sale of Goods Act

Formation of Contract of Sale- Passing of Property in Goods- Performance of Contract of Sale.

UNIT-V Unpaid Seller. Conditions and Warranties- Rights of Unpaid Seller.

TEXT BOOKS:

1. N.D.Kapoor - Business Laws, Sultan Chand and Son, 2016

1. What is law?
Law includes all the rules and principles, which regulate our relations with the state. In
other terms law can be defined as “Law is the body of principles recognized and applied
by the State in the administration of justice.
2. Define contract.
Section 2(h) of the Indian Contract Act 1872 defines a contract as “An agreement
enforceable by law. In this two important elements which are essential for the formation
of valid contract”.
 There must be an agreement
 That agreement should be a legally enforceable one.

3. Define agreement.
Section 2(e) of the Indian Contract Act states that every promises and every set or
promises, forming the consideration of each other is an agreement. An agreement
comes into existence when an offer is accepted by the officer. Agreement is otherwise
called promise.
Offer+Acceptence=Agreement

4. Meaning of valid contract.

A contract is an agreement, enforceable by law made between at least two parties by which
rights are acquired by one and obligation is created on the part of another.

5. Define void agreement.

The Indian contract act defines a void agreement as one which is not enforceable at law
this implies that a void agreement, on its breach, cannot be enforce in the court of the law
since does not take cognizance of such an agreement.

6. Essentials elements of a valid Contract

a) Plurality of persons
Two persons required and there must also privities (knowledge) about the contract.
b) Offer and acceptance
Lawful proposal i.e. Offer and lawful acceptance is needed. The offer and acceptance
must be -Consensus ad-idem' which means that both parties must agree on the same in
the same sense.
c) Legal relationship.
When two parties enter into an agreement, their intention must be to create a legal
relationship, if not it is void.
d) Lawful consideration
1. The agreement to be enforceable by law must be supported by consideration.
2. The term consideration in simple words means something in return
3. The agreement is Icga1y enforceable only when both the parties give something
and get something in return.
e) Capacity of Parties (competency)
The pal1ies to the agreement must be capable of entering into a valid contract. Every
person is competent to contract if he (1) is of the age of majority, (2) is of sound mind
f) Free and Genuine consent
It is essential that lice and genuine consent of the parties to the agreement.
g) Lawful object
The object of the agreement must be lawful. It is lawful unless it is forbidden by law,
the object the agreement must not be illegal, Immoral, opposed to public policy, lf
agreements suffer from any legal flow, and it would not be enforceable by law.
h) Agreement not declared void
Sec 24 to 30 of the Indian Contract Act specify certain types of agreements which
 have been expressly declared to be void.
(1) An agreement in restraint marriage,
(2) Restraint in trade.
i) Certainty and possibility of performance
The terms of the agreement must be certain and not vague or Ambiguous. The terms
of the agreement must also be such as are capable of performance. The law does not
compel to do what is impossible.
a) Pre-contractual Impossibility
A contract which at the time it was entered into was impossible to perform is void a
into and creates no rights and obligations.
b) Post-contractual Impossibility
A contract which at the time it was entered into was capable of being performed may
subsequently become impossible to perform or lawful. In such cases it becomes void.
This known as doctrine of Supervising Impossibility or doctrine of frustration.
j) Legal formalities
The agreement may be ordering writing. Where is to be in writing, it must comply
with necessary legal formalities such as stamping, registration, attestation, etc.,

Classification of contract

Classification according to enforceability

1. Void Agreement: A void agreement is void from the very beginning (i.e. void ab initio),
whereas a void contract is valid at the time of its formation but become void subsequently.
2. Void contract: Void Contract: Sec. 2(j) defines this contract as, "a contract, which ceases
to be enforceable by law, becomes void when it ceases to be enforceable. Act may be valid at
the time when it was made, but later it may become void. Act with an alien friend becomes
subsequently void when alien friend becomes alien enemy".
3. Voidable Contract: Voidable Contract: Section 2 (i) defines a voidable contract as "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". A contract is a voidable contract when the consent or
willingness of one party has been obtained by the other by such unfair means as coercion (act
of threatening), undue influence, fraud etc.
4. Unlawful Agreement: Unlawful Agreement: An unlawful agreement is one that is not
approved by law on some ground of public policy. Such an agreement is void from the very
beginning (void ab initio) and, therefore, is not enforceable in a Court of law.
Examples:
(i)An agreement in restraint of marriage, te, an agreement that restricts a person's right to
choose his/her life partner. There is an agreement between X and Y by which X's daughter will
marry Y's son. Such an agreement is unlawful and, therefore, not enforceable.
(ii) An agreement in restraint of trade, de, an agreement that restricts a person's right to choose
his/her profession or occupation. An agreement between P and Q that P's son will work in Q's
concern is a void agreement.
5. Illegal Agreement: Illegal Contract: An illegal contract is one which breaks some rule of
basic public policy or which is criminal in nature or immoral. It is void ab initio. Thus, a
contract to commit decoity is an illegal contract and cannot be enforced at law.
Example:
A employs B to kill C and promises B a sum of Rs. 10, 000 for doing the job. If B kills C, he
cannot claim payment from A and if A has already paid the amount and B does not kill C, A
cannot recover the amount.

According to formation
1. Express Contract: A contract is said to be an express contract, if the terms of a contract are
expressly agreed upon between the parties (either by words spoken or written) at the time of
formation of the contract. An express promise results in express contract. A promise is said to
be an express promise, when the offer or acceptance of any promise is made in words.
Example: A writes to B, "I am prepared to sell my house for ₹10,000". B accepts A's offer by
a telegram. This contract will be called express contract.
2. Implied Contract: An implied contract is one for which the proposal or acceptance is made
otherwise than in words (Sec. 9). Where the proposal or acceptance of any promise is made
otherwise than in words, the promise is known as implied promise. Implied contracts are
inferred from the circumstances of the case and conduct of the parties. For example, when A
takes a cup of milk in a hotel, there is an implied contract.
3. Quasi-Contract: A quasi-contract is one, which is created by law. In the quasi-contract,
there is no intention on either side to make a contract: Generally, in contracts, rights and
obligations arise by an agreement between the contracting parties. But in a quasi-contract,
rights and obligations arise not by an agreement but by operations of law. For example, where
certain letters are delivered to a wrong addressee, the addressee is under an obligation to return
them. Similarly, a finder of lost goods is under an obligation to find out the true owner and
return the goods.
According to performance
According to the extent of performance of contracts, contracts may be classified as 1. Unilateral
Contract, and 2. Bilateral Contract
1. Unilateral Contract: It is also called as one-sided contract. A unilateral contract is one in
which only one party has to satisfy his obligation at the time of the formation of it, the other
party having fulfilled his obligation at the time of the contract or before the contract comes into
existence. For example, A takes a public auto to go to Mount Road. A contract comes into
existence as soon as A was dropped in Mount Road. By that time, auto man has fulfilled his
obligation, only A has to fulfill his obligation i.e. paying the auto man.
Example: A permits a coolie to put his luggage to a carriage. The contract comes into existence
as soon as the coolie puts the luggage. So, A has only to fulfill his part.
2. Bilateral Contract: A contract is said to be a bilateral contract where the obligations of both
the parties to the contract are pending at the time of formation of the contract. In this type of
contract, a promise on one side is exchanged for a promise on the other. For example, A
promises to stitch a blouse and B promises to pay ₹300. Here A promises to stitch the blouse
and B promises to pay. Thus, each party is both a promisor and a promisee.
According to Execution
According to the execution of the contracts, contracts are classified into two as 1. Executed
Contract, and 2. Executory Contract.
1. Executed Contract: A contract is said to be executed contract when both the parties to
contract have performed their share of obligation. For example, A agrees to repair B's car for
₹5,000. When A repairs car and B pay's the service charge, the contract is said to be executed.
2. Executory Contract: An executory contract is one, which is either wholly unperformed, or
there remains something to be done by both the parties to contract. Sometimes, a contract may
be partly executed and partly executory. If A has repaired the car but B has not yet paid the
charge, the contract is executed as to A and executory as to B.

OFFER
An 'offer' is also known as a 'proposal'. According to Section 2(a), "when one person signifies
to another his willingness to do or abstain from doing anything with a view to obtaining the
assent of that other to such act or abstinence, he is said to make a proposal".

The following points emerge out of the above definition of offer:

There is an offer only when a person conveys his willingness to another and not to himself.
2. The willingness may be to do or not to do (abstain from doing) a thing.

LEGAL RULES RELATING TO OFFER

1. An offer, when accepted, must create legal relationship between the parties: The
obligation arising out of it must not be a personal or a social obligation (Balfour vs. Balfour).
Example:
An offer by a father to give pocket money to his son or an offer to join a friend for dinner at a
hotel on a particular day, even when accepted, cannot be legally binding. Such offers have no
legal significance.

2. The terms of the offer must be clear and certain: The offer cannot be valid if the terms
are vague or ambiguous.
Example:
A, who owns three motorcycles, tells B, "I will sell you a bike". The offer by A is not valid as
the terms of offer are not definite and certain.

Case: Taylor vs. Portington

In this case, a tenant wanted a broker to find a house, furnished according to the present style,
on lease for three years. Accordingly, the broker found a house but it was not acceptable to the
tenant. The broker filed a suit in the Court against the tenant but it was dismissed on the ground
that the offer made by the tenant was vague.

3. Declaration of intention by one person to another does not constitute a valid offer: It,
therefore, does not give the other person the right to take legal action.
Example:
X tells Y "I intend selling my car for Rs. 1 lakh. There is no valid offer from X as he has only
conveyed his intention to sell his car. Y, therefore, cannot sue X for the car."

Case: Harris vs. Nickerson

In this case, an auctioneer had advertised in a newspaper that a sale of office furniture would
be held at a certain place on a particular date. Seeing the advertisement, a person came from a
distant place only to find that the sale did not take place as announced. For the loss of time and
expenses, he filed a suit against the auctioneer. The Court decided that the advertisement was
merely a declaration of intention to hold auction and not an offer to sell.
4. An invitation to offer is different from a valid offer. Window display of goods by the
shopkeepers, newspaper advertisements for the sale of articles etc. do not actually constitute
an offer. They are to be understood as an invitation to the public to make an offer.
Examples:
(1). A person entering a shop and picking up an article is actually making the offer to buy to
the seller and it is for the seller to accept or reject the offer.
(2) The prospectus issued by a company to the public to subscribe to its shares is only an
invitation to the latter to offer. The applicants, by applying for the shares, make an offer to the
company and it is for the company to either accept or reject the offer.

5. Offer must be communicated: Communication of offer is complete only when it reaches

the person to whom it is made. Unless an offer is communicated to the offeree, it cannot be
accepted. An acceptance without the knowledge of the offer cannot give the acceptor any right.
Case: Lalman vs. Gauri Dutt
G whose nephew was missing, asked his servant L to trace the boy, Afterwards, he announced
a reward to anyone who traced the boy. Finally, it was L who traced the boy but was not aware
of the reward announced by his master. When he came to know of it, he wanted to claim it. He,
therefore, filed a suit against his master. The Court decided that L could not claim the reward,
as he was not aware of it when he traced the boy.

6. Offer must not contain a term the non-compliance of which would amount to
acceptance: The offeror, thus, cannot say that if the offer is not accepted within a certain time,
he will presume acceptance (take for granted).
Example:
P offers to sell his bike to R for Rs.25, 000 and tells R, "If I do not hear your reply within a
week, I shall presume that you have accepted the offer". Here, if R does not reply, it does not
mean that he has accepted P's offer.

7. A mere statement of price does not constitute an offer to sell: It is only a quotation and
an invitation to make an offer.
Case: Harvey vs. Facey
In this case, three telegrams were exchanged between Harvey and Facey:
(a) The first telegram from Harvey to Facey - "Will you sell us your Bumper Hall Pen?
Telegraph the lowest cash price".
(b) The second telegram from Facey to Harvey - "Lowest price for Bumper Hall Pen 900
Pounds".
(c) The third telegram from Harvey to Facey - "We agree to buy Bumper Hall Pen for the
sum of 900 pounds asked by you".
On a suit by Harvey when Facey failed to sell, the Court observed that Facey had only
given a quotation and there could be a contract only if he had accepted the third telegram.

8. Special terms of offer, if any, must be communicated to the offeree at the time when the
offer is made: Otherwise, the offeree will not be bound by them.

Case: Olley vs. Marlborough Court Ltd.

A hotel had put up a notice in the bedroom stating that the hotel administration would
not be liable for the loss of the client's goods. On a suit by a client, who lost his belongings, the
Court held that the notice was not binding on the client as it came to his knowledge only after
he signed the contract to occupy the room.

When certain terms and conditions are printed on the back of a ticket, there should be
some indication on the face of the ticket to draw the attention of the person concerned to those
terms and conditions. 'P.T.O' (Please Turn Over), 'For conditions see overleaf' are a few such
indications. In such a case, the terms and conditions will be binding on the person concerned
even if he does not or cannot go through the same.

Case: Parker vs. S.E. Rail. Co.

P kept his bag in the cloakroom of a railway station. The indication 'See Back' was printed on
the face of the ticket issued to him. On the back of the ticket, one of the terms and conditions
restricted the liability of the Railway Company for the loss of a package to 10 pounds. P's bag
was lost and he claimed 24.50 pounds for the loss. The Court decided that the terms and
conditions were binding on P whether he went through the same or not and, therefore, he could
claim only 10 pounds.

ACCEPTANCE
An offer is said to be accepted when the person to whom it is made gives his consent to it.
According to Section 2(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".

LEGAL RULES REGARDING ACCEPTANCE

1. Acceptance must be absolute and unqualified: It means that the terms of offer must be
fully acceptable to the offeree. If the offeree, while responding to the offer, wants the terms of
offer varied or modified or imposes certain conditions, there is no valid acceptance.
Example:
P offers to sell his bike to Q for Rs.25, 000. Q is prepared to pay Rs.20, 000. There is no valid
acceptance by Q and it only amounts to a 'counter-offer'.
Case: Neale vs. Merret
In this case there was an offer by M to sell his land to N for 280 pounds. N sent an initial
amount of 80 pounds and wanted to pay the balance by monthly instalments. The Court held
that there was no contract between M and N, as N's acceptance was not absolute and
unqualified.

2. Mere mental acceptance is not enough: Acceptance, to be valid, must be properly

communicated to the offeror.
Case: Brogden vs. Metropolitan Railway Co.
There was an offer to supply coal to a Railway Company. The manager of the Railway
Company accepted the offer by writing "approved" in the draft agreement, kept it in his table
and forgot about it. The Court observed that there was no contract, as the acceptance was not
properly communicated to the offeror.

3. Acceptance must be given according to the prescribed mode: Where the offeror has not
specified the manner in which acceptance must be given, it must be given according to some
usual or reasonable mode.
Example:
A writes to B offering to sell his flat for Rs. 10Lakhs and asks B to send a telegram if he is
accepting the offer. B accepts A's offer but conveys his acceptance by a letter. The acceptance
will be valid unless A informs B that the acceptance is not in accordance with the prescribed
mode.

4. Acceptance must be given within the time specified in the offer. If no time limit is
specified, acceptance must be given within a reasonable time.
Case: Ramsgate Victoria Hotel Co. vs. Montefiore
M had offered to buy shares in R Company in June. But the Company had sent the letter of
acceptance in November. The Court held that M could reject the Company's acceptance, as it
was not given within a reasonable time.

5. Acceptance must be given only by the person to whom the offer is made or by an
authorized person and that too officially: The offeror cannot act on the basis of unofficial
information.
Case: Powell vs. Lee
The managing committee of a School considered P's application for the post of the headmaster
and decided to appoint him. The appointment was not officially conveyed to P. P came to know
of his selection unofficially. Later, the managing committee cancelled P's selection and
appointed another person. On a suit filed by P, the Court held that as P's selection was not
officially conveyed to him by the competent authority, he had no right of action.

6. Acceptance must be conveyed only to the offeror or a person authorized by him.

Example:
X offers to sell his dog to Y for Rs. 1, 000 and asks Y to convey his willingness directly to him
(X). Y conveys his acceptance to Z., a friend of X. IfZ fails to inform X, Y will have no remedy.
If Z informs X, it is for X to decide.

7. Under the normal circumstances, acceptance cannot be implied from the silence of the
offeree or his failure to reply:
Example:
M with the consent of his daughter writes to N, "Convey your willingness to marry my
daughter. If I don't hear anything from you within a week, I shall assume that you are interested
in the marriage proposal". N does not reply. N has no obligation to marry M's daughter.

8. An acceptance based on the presumption of an offer is not valid: Further, acceptance

cannot precede, i.e., come before an offer.
Example:
B, who has not offered to buy Pizza, receives a phone call from a Pizza shop that his number
has been picked up from the telephone directory and that a the shop is sending a pack of Pizza
worth Rs.300 for which B need not pay more than Rs. 100. B has no obligation to buy.

9. Acceptance must be given before the offer lapses or is withdrawn.

Example:
A two-wheeler dealer offers free insurance and road-tax for all those who book within a week.
R approaches the dealer on the third day only to learn that the dealer has already withdrawn
the offer through a newspaper announcement. R has no remedy.

CONSIDERATION
Quid Pro Quo' is a Latin phrase the meaning of which is 'something in return'. A party to an
agreement who promises to do something must gain something in return.
This something in return is what is called CONSIDERATION.
Example:
S offers his wristwatch to B for Rs.500. The wristwatch is the consideration for B and the price
is the consideration for S.

Definition of Consideration:
In the famous English case CURRIE vs. MISA, consideration was defined as follows:
"A valuable consideration in the sense of the law may consist either in some right, interest,
profit or benefit accruing to one party, or some forbearance detriment, loss or responsibility
given, suffered or undertaken by the other".

LEGAL RULES REGARDING CONSIDERATION

1. Consideration must always be provided at the desire of the Promisor: In case it is given
without the desire of the promisor, it will not be a valid consideration.
Example:

During a fire accident A saves certain belongings of B voluntarily. He cannot claim payment
for such a voluntary service. If A does it at the request of B then he can claim payment.

2. It may be provided by the Promisee or any other person. According to Section 2 (d),
consideration may be provided, at the desire of the promisor, by the promisee or any other
person. If any person other than the promisee provides consideration, such a person becomes a
stranger to consideration. A stranger to consideration can sue if he is a party to the contract.
Example:
C lends Rs. 10, 000 to P on the condition that S guarantees repayment by p S is known as the
Surety. The actual beneficiary here is only P and not S. S is a stranger to consideration. S's
liability to pay C will arise only when p fails to repay C. After paying C, S (who is a party to
the contract of guarantee involving P, C and S) can sue to recover from P.

Case: Chinnaya vs. Ramayya

In this case, an old lady, by a deed of gift, transferred a certain property to her daughter with
the direction that the daughter should pay her aunt (sister of the old lady) a certain amount
annually. On the same day the daughter entered into an agreement with her aunt to pay the
agreed amount. Later, the daughter refused to pay on the ground of absence of consideration
from her aunt. The Court held that the aunt was entitled to the amount as the old lady had
already provided consideration.

3. It may be an act or abstinence. Abstinence means avoidance: What is provided by way

of consideration may be either to do or not to do something.

Examples:
(1) A agrees to sell his bicycle to B for Rs.500 and B agrees to pay immediately on delivery.
Here A's promise to sell the bicycle forms the consideration for B's promise to pay Rs.500 and
B's promise to pay forms the consideration for A's promise to sell.

4. It may be past, present or future: The usage in Section 2 (d), "has done or abstained from
doing, or does or abstains from doing, or promise to do or to abstain from doing something"
indicates that consideration may be past. present or future.
(1) Past Consideration: It refers to consideration provided already in the past by a party for a
present promise.
Example:
Two weeks ago, there was a fire accident when X saved certain goods belonging to Y at the
latter's request. Y promises now to pay X Rs.500 for his services. This is valid under the Indian
Law. The English Law does not recognize past consideration.
(2) Present Consideration: It refers to consideration provided simultaneously with the
promise. In any 'cash and carry business', the consideration moves simultaneously with the
promise.
Example:
A departmental store sells provisions worth Rs. 1, 000 to R for which R pays cash immediately.
(3) Future Consideration: It refers to consideration to be provided in future by the parties,
i.e., after the formation of the contract.
Example: There is a contract between P and Q by which P agrees to sell and deliver his bicycle
after two days and Q agrees to pay the price of Rs.500 within a week after taking delivery.

5. A promise by which the promisor does not gain anything in return is not enforceable:
Likewise, the promisee will not succeed in his suit where he does not suffer any detriment due
to the promisor's failure to fulfil his promise.
Case: Abdul Aziz vs. Masum Ali
In this case, there was a promise to contribute some money for renovating a mosque. When the
promisor failed to fulfil his promise, the secretary of the mosque, who was the promisee, filed
a suit. The suit was dismissed on two grounds - a) The promisor did not gain anything in return
and b) The promisee did not suffer any detriment due to the promisor's failure to contribute.

6. Where the promisee has incurred a liability on the strength of the promise made by the
promisor, he can sue:

Case: Kedar Nath vs. Gauri Mohamed

In this case too there was a promise to contribute money for undertaking some construction
activity. The promisee started the construction work by incurring a liability on the strength of
the promise made by the promisor. The Court held that the promisee was entitled to claim in
view of the liability incurred by him on the strength of the promise.

7. Consideration need not be adequate: But it must be of some value in the eyes of law. What
is received need not be equal to what is given.
Example:
X, who needs urgent cash, sells his gold ring worth Rs.7, 000 for Rs.700 to Y. Y gets a valid
title, i.e., ownership right.

However, the Court may look into the inadequacy of consideration in certain cases to determine
whether the promisor has given his consent freely.

8. Consideration must be real and lawful and not illusory: Illusory means imaginary, myth
or unreal. Consideration is illusory when it is wrongly believed to exist. L

Case: Stilk vs. Myrick

Two of the crewmembers of fa ship deserted it half way during a voyage. The captain of the
ship agreed to divide the salary of the two among the remaining crewmembers if they helped
him to bring the ship to the port of destination. When they claimed the amount by approaching
the Court, it was held that they were already under a duty to assist the captain in bringing the
ship home and, therefore, were not entitled to any extra remuneration. The consideration agreed
to be provided was illusory.

9. Consideration must be something which the promisor is not already bound to do under
law: A promise to compensate a person for doing his contractual or legal duty is not a valid
consideration.
Case: Collins vs. Godefroy
In this case, a person had received summons to appear at a trial in a civil suit. A promise was
made to pay him a certain sum as compensation for the loss of time during his attendance. It
was held unenforceable on the ground that the person was under a duty imposed by law to
appear and give evidence.
10. The act constituting consideration must not be illegal, immoral or opposed to public
policy.
Examples:
(1) P promises to supply large quantities of arms and ammunitions to Q in consideration
for Q's promise to pay him Rs. 10Lakhs. The act constituting consideration is illegal.
(2) X lets out his house to a prostitute who promises a big amount as monthly rent. The act
constituting consideration is immoral in nature.
(3) M agrees to get N's son a seat in the Medical College in consideration of N paying him
a sum of Rs.15Lakhs. The act constituting consideration is opposed to public policy.
 UNIT-II Free Consent
Persons Incompetent to Contract- Free Consent- Agreements with Unlawful Object- Wagering
Agreements and Contingent Contracts.

Persons Incompetent to Contract

An agreement becomes a contract only when the parties to it are competent to contract, ie, capable of
entering into a contract.

According to Section 11.

"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".

Thus, the following persons are incapable of entering into a valid contract according
to Section 11:
1) A person who has not attained the age of majority, i.e., a minor
2) A person of Unsound Mind and
3) (ⅲ) A Person disqualified from contracting by any law to which he is subject

MINOR
A minor is a person who has not completed eighteen years of age (Section 3 of the
Indian Majority Act, 1875). He is under the care of his parents who are called 'natural
guardians'

If the parents of a minor are not alive, the Court will appoint a guardian for him. In
such a case, the minor will attain majority only at the age of 21.

RULES REGARDING MINOR'S AGREEMENTS

As the minor is inexperienced and is generally not in a position to distinguish between
what is good and bad, law gives utmost importance to safeguarding his interests. The
following are the important rules governing minor's agreements:

1. An agreement by or with a minor is void ab initio: Invalid from the very beginning.

Case: Mohiri Bibi vs. Dharmodas Ghose

A minor mortgaged his house in favour of a money-lender to secure a loan. Later, he filed a
suit for setting aside the mortgage on the ground of his minority. The Court held that the
mortgage was invalid. The money-lender's request for the repayment of the amount lent to the
minor was also rejected.

2. He is not liable to return the benefits received under a void agreement: Normally, when
an agreement becomes void, the party who has received any benefit under it must restore it to
the party who has given the benefit. The restoration of benefit is what is called 'Restitution'
(Section 65). This rule does not apply to a minor.
Even in the case Mohiri Bibi vs. Dharmodas Ghose, the minor was not required to repay
the loan.

3. He can be a beneficiary, i.e., he is allowed to accept a benefit.

Example:
A minor can enforce a mortgage executed in his favour.
Case: Abdul Ghaffar vs. Prem Piare Lal
A minor, in this case, sold certain goods under a contract of sale and was allowed to
file a suit to recover the price.

4. His estate (property) is liable for necessaries provided to him: He is not personally liable
for payment. "Necessaries" do not mean just bare necessaries such as food, clothing and shelter.
What are the necessaries to be provided will depend on the status and lifestyle of the minor.
Case: Nash vs. Inman
In this case, Inman, a minor purchased eleven fancy waistcoats at a time from Nash and
that too when he already had sufficient clothes. The Court held that the waistcoats were not
necessaries.
Certain services provided to a minor will also come under necessaries of life. These
include education, medical and legal advice and training to learn a certain trade. The minor's
estate is liable for the provision of a service that is certainly beneficial to him.

5. He cannot ratify an agreement made during his minority on attaining the age of
majority. To 'ratify' means to approve an act done earlier without authority.

Case: Smith vs. King

A minor indulged in speculation activities in the stock market and became indebted to a share-
broker to the tune of a certain amount. On attaining the age of majority, he accepted a certain
bill in satisfaction of his debt. The Court held that he was not liable on the bills.

6. Where a minor projects himself as a major (by fraud) and borrows money or goods, he
is not liable to the lender if he has spent the money or consumed the goods: The lender can
apply for refund or restoration where the minor is still in possession of the amount or the goods
borrowed.
7. A minor is liable for punishment for criminal offences committed by him: e.g., robbery,
murder etc.
8. He can be appointed as an agent: But he is not personally liable to the principal. The
principal, however, is responsible to the third parties on the acts of the agent.
9. He cannot enter into a contract of partnership: But he may be admitted to the benefits of
an already existing partnership with the consent of all the partners.
10. He cannot be adjudged insolvent: This is because the minor cannot contract debts.
11. Shares can be purchased in the name of a minor.

A PERSON OF UNSOUND MIND - According to Section 12

"A person is said to be of sound mind for the purpose of making a contract, if, at the
time when he makes it, he is capable of understanding it and of forming a rational judgement
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.
Example:
A patient in a lunatic asylum, who is at intervals of sound mind, may contract during
those intervals.

A person, who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.
Example:
A sane man, who is so drunk that he cannot understand the terms of a contract or form
a rational judgement as to its effect on his interests, cannot contract while such a condition
exists.

Classification of Persons of Unsound Mind

1) Lunatic
2) Idiot
3) Drunken person

Lunatic
A lunatic is a mentally affected person. He suffers from intermittent conditions of sanity and
insanity. Such a person can enter into a contract when he is in a position to understand the
implications of it.

Idiot
An idiot is a person who does not possess understanding power at all. Idiocy, unlike insanity,
is a permanent condition. An agreement by or with an idiot, therefore, is void.

Drunken Person
A person who is drunk loses temporarily his capacity to form a rational judgement. Such a
person, therefore, cannot enter into a valid contract at a time when he is so drunk.

OTHER PERSONS DISQUALIFIED FROM CONTRACTING

Alien Enemies
An alien is a person who is not a citizen of India. He may be an alien friend or an alien enemy.
An alien friend is one whose country is at peace with India An alien enemy, on the other hand,
is one whose country is at war with India.
Contracts with an alien friend are valid. As far as an alien enemy is concerned, he cannot enter
into a contract with an Indian during the period of war. He also cannot take legal action in an
Indian Court without the permission of the Central Government. As far as the contracts made
before the war are concerned, they are dissolved if found to be against the public policy.
Foreign Ambassadors
They are representatives of foreign countries in India. They can enter into contracts and enforce
these contracts in Indian Courts. But legal action can be taken against them only with the
permission of the Central Government.
Convicts
Convict is a person in jail. A person while undergoing imprisonment cannot enter into a valid
contract. But if he is on 'parole' (released from jail for a particular purpose) or if his period of
imprisonment has ended, he can enter into a contract.
Insolvents
An insolvent is a person whose debts are more than his assets. The property of an insolvent
will come into the possession of the Official Receiver or Official Assignee appointed by the
Court. An insolvent cannot enter into contracts relating to his property. He cannot sue and be
sued.
The contractual capacity of a Company, registered under the Companies Act of 1956, is
determined by its Memorandum of Association and the provisions of the Companies Act. An
act done in excess of the power of the company is "Ultra Vires" the company, i.e., beyond its
powers and therefore void.
FREE CONSENT
According to Section 10, "All agreements are contracts if they are made by the free
consent of Parties..."

"Consent' means 'willingness'. The willingness of the parties to a contract must come
freely. According to Section 14, Consent is said to be free when it is not caused by -
(1) Coercion,
(2) Undue Influence,
(3) Fraud,
(4) Misrepresentation or
(5) Mistake
Therefore, coercion, undue influence, fraud, misrepresentation, or error result in a flaw
(imperfection) in consent.

COERCION
The term "coerce" refers to the act of forcing or compelling someone to act in a specific way.
Put differently, when someone threatens another, that person is using "coercion" against them.
Example:
A, who owes B Rs. 10, 000, threatens to kill B if the latter does not release him (A)
from the debt. Here, A uses coercion.

Case: Ranganayakamma vs. Alwarchetty

Here, a young girl's family forced her to adopt a boy because her husband had passed away
shortly before. They also threatened to remove her husband's body for cremation without
getting her permission. According to the Court, coercion was used to obtain the consent. As
such, the adoption was revoked.

DEFINITION OF COERCION
According to Section 15,
"Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal
Code 1860 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".

UNDUE INFLUENCE
It can happen that one party to a contract has undue (excessive or significant) influence over
the other because of his position.
Example:
Taking unfair advantage of his position, a physician might order unnecessary tests for a patient
in order to charge astronomical prices. In this scenario, the patient suffers harm.
Definition of Undue Influence - Section 16 (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".
Examples:
a) A person holding real or apparent authority over the other:

 Master and Servant

 Doctor and Patient
 Lawyer and Client
 Parent and Child
 Guardian and Ward
  Religious Guru and disciple
In the above relationships, undue influence is presumed.
Nonetheless, there is no assumption of undue influence in the following situations:
 Husband and Wife
 Landlord and Tenant
 Creditor and Debtor
b) A person standing in a fiduciary relation to the other (Fiduciary relationship is the one based
on trust and confidence):
(i) Trustee and Beneficiary
(ii) Promoter and Company
(iii) Principal and Agent
(iv) Solicitor and Client
(v) Insurer and Insured
c) A person making contract with someone whose physical or mental capacity is affected by
reason of age, illness or mental or bodily distress:

FRAUD
A party commits fraud when they knowingly and intentionally misrepresent any fact in order
to trick the other party to an agreement.
Definition of Fraud - Section 17
'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.

MISREPRESENTATION
‘Misrepresentation' is a false representation of fact made by a party to an agreement
without any intention to deceive the other party.
Example:
As X is selling Y his gold ring, he informs him that it is made entirely of pure gold. X
is not trying to scam Y; rather, he sincerely believes that it is made of pure gold. Later on, Y
discovers that the gold is tainted. It is not fraud but rather misrepresentation that X is making
regarding the ring.
Case: Derry vs. Peek
A company said in its prospectus that it was authorized to use steam power to power its
tramways. In reality, though, the company was waiting on government approval to use steam
power at that point. In good faith, the company's directors thought authorization would be
approved. But permission was denied by the government. Afterwards, the business was closed.
Instead of being found guilty of fraud, the Court determined that the directors had committed
misrepresentation.

DEFINITION OF MISREPRESENTATION - Section 18

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;

MISTAKE
"An incorrect idea or opinion about something" is refers as mistake. It comes in two
varieties.
a) Mistake of Law and
b) Mistake of Fact
Mistake of Law A person may be under a mistake of -
a) Indian Law or
b) Foreign Law,
Mistake of Indian Law
Every citizen of India is expected to be familiar with the law of the land. "Ignorance of
law is no excuse" (Ignorantia juris non excusat in Latin).
A party to a contract cannot get any relief on the ground that he has done something in
ignorance of or making a mistake of the law of the land. The contract, therefore, is not voidable
(cannot be avoided).
Example:
A, an illiterate, has taxable income. He fails to comply with the provisions of the Income Tax
Act. He is liable for legal action under the Act.

Mistake of Foreign Law

A citizen of India, while in India, is not expected to be familiar with the law of a foreign
country. An agreement made by parties in India making a mistake of a certain foreign law,
therefore, is void.
Example:
X agrees to import certain goods from China and sell the same to Y without knowing
that China imposes restrictions on the export of those goods. The agreement between X and Y,
therefore, is void.
Mistake of foreign law is treated as mistake of fact.
But an Indian visiting a foreign country has to be familiar with the law of that country.
If he fails to comply with it, by mistake or otherwise, he will be liable for legal action as per
the law prevailing in such a foreign country.

Mistake of Fact
Mistake of Fact is classified into -
(a) Bilateral Mistake and
(b) Unilateral Mistake
Bilateral Mistake - Section 20,
It means that both the parties to the agreement are under a mistake.
"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".
Bilateral mistake may relate to -
(i) the subject matter of the contract or
(ii) the possibility of performing the contract
Unilateral Mistake
Where one of the parties to a contract is under a mistake as to a matter of fact, it is known as
unilateral mistake. According to Section 22,
"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".
Example:
R buys a wristwatch from S thinking that it is worth Rs.1,000. The watch actually is worth
only Rs.100. R cannot avoid the contract.
 Agreements with Unlawful Object
For an agreement to become a valid contract, it is important that its object is
lawful. According to Section 23,

"The consideration or object of an agreement is lawful, unless -

It is forbidden by law; or is of such a nature that, if permitted, it would

defeat the provisions of any law; or is fraudulent; or involves or implies injury
to the person or property of another; or the Court regards it as immoral, or
opposed to public policy".

In each of these cases, the consideration or object of an agreement is said to be

unlawful. Every agreement of which the object or consideration is unlawful is
void.

What is given in Section 23 is explained below with examples.

1. If the object of the agreement is forbidden by law: i.e., punishable under

the criminal law or prohibited by a special legislation.
Examples:
(a) X promises to get Y a Government job in consideration of Y paying a sum
of Rs.5Lakhs. The consideration or the object of the agreement is illegal and,
therefore, an offence punishable under the criminal law.
(b) M and N work together to produce and sell pirated CDs of latest movies. The
agreement is illegal and an offence punishable under the criminal law.
2. If it defeats the provisions of any law (although not directly forbidden by
law).
Example:
An agreement to pay an employee 'conveyance allowance' disproportionate to
his basic salary is void as it is a device to evade income-tax and such an
agreement defeats the provisions of the Income - Tax Act.
Case: Rama Murthi vs. Goppayya
In this case, a debtor agreed with the creditor not to raise the point of limitation
period. The agreement was held void as it defeated the provisions of
the Limitation Act.
3. If it is fraudulent
Example:
There is an agreement between P, Q and R to start finance business, induce the
public to deposit by offering a very high rate of interest and later abscond with
the depositors' money. The agreement is fraudulent in nature.
4. If it involves or implies injury (harm) to the person or property of
another
Example:
The editor of a local newspaper receives a big amount from X and promises to
publish a defamatory article against Y. The agreement is unlawful.
Case: Ramsaroop vs. Bansi Mandar
A person who borrowed Rs.100 agreed to work for the lender for 2 years without
any remuneration and pay a very high rate of interest and the principal amount
all at once. The agreement was held void on the ground that the terms were quite
unreasonable and detrimental to the interests of the borrower

5. If the Court regards it as immoral

Cases: Baivijli vs. Nansa Nagar
In this case, money was lent to a married woman to obtain divorce from her
husband and marry the lender. It was held that the agreement was immoral and
the lender could not recover the amount.
Pearce Vs. Brooks
A coach-builder, in this case, let out a coach for rent to a prostitute knowing
fully well the purpose for which it would be used. Later, a suit was filed against
her for the default in paying rent. It was held that the amount could not be
recovered, as the object of the agreement was immoral

6. If the Court regards it as opposed to public policy (harmful to the welfare

of the public)
Example:
Any agreement the object of which is to make quick money by indulging in such
activities as black-marketing, adulteration etc. is illegal being opposed to public
welfare.
Case: Neville vs. Dominion of Canada News Co. Ltd.
In this case, the editor of a newspaper agreed not to comment on the conduct of
a particular individual. The agreement, being opposed to public policy,
was held unlawful.

Wagering Agreements & Contingent Contracts

Wagering Agreement (Wager)

Wager' means 'bet'. The performance of a wagering agreement depends only upon the
occurrence of an uncertain event. The parties to a wager are not sure of whether the event
will happen or not.
Examples:
(a) In a cricket match between India and Pakistan, X bets with Y that Sachin Tendulkar will
score a century and Y bets with X that Tendulkar will not. The party losing has to pay the
party winning Rs.500. This is a wagering agreement.
(b) A agrees to pay B Rs. 100 if it rains on a particular day and B agrees to pay if it doesn't.
This is a wager.

A Wager may be defined as "an agreement between two persons by which one promises to
pay money or money's worth if some uncertain event takes place in consideration of the other
party's promise to pay if the event does not take place".
According to Section 30, agreements by way of wager are void; and no suit shall be brought
for recovering anything unproven to be won on any wager.
Effects of a Wagering Agreement
The effects or the consequences of a wager are:
1. A wagering agreement is void in India.
2. No suit can be filed to recover anything won upon a wager.
3. In the States of Maharashtra and Gujarat, wager has been declared illegal, i.e., an offence
punishable apart from being void. The collateral transaction to a wager, therefore, will also
become illegal in these two States.
Essentials of a Wagering Agreement
The essential elements of a wager are as follows:
1. There must be a promise to pay money or money's worth.
2 The performance of the promise must depend upon the happening of an uncertain event,
i.e., the event may or may not happen.
3. Each party must stand to win or lose. Both cannot win; both cannot lose.
4. It should not be possible for either party to exercise control over the happening of the
event.
5. Each party must only be interested in what is in stake (money etc.) that he is
going to win or lose

Transactions of a Wagering nature

The following transactions are of a wagering nature and are, therefore, not
enforceable in a Court of law:
1. Lottery
2. Horse racing
Lottery and horse racing will not be wagers if the Government supports these.
3. A commercial transaction where the intention of the parties is not to deliver the goods but
only to pay the difference in price.
4. If the prize in a crossword puzzle is to depend on the compliance of the participant's
solution with the one prepared already.
Transactions not of a wagering nature
The following transactions are not wagers and are, therefore, enforceable:
1. A crossword competition involving a good amount of skill and intelligence.
2. The game of rummy as it is not a game of chance.
3. A contract of insurance.

Contingent Contracts

Definition - According to Section 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.
From the definition it is clear that:
1. The performance of a contingent contract depends upon the happening or non- happening
of some future event.
2. The event must be uncertain.
3. The event must be collateral (not primary) to the contract.
Examples:
(a) X agrees to sell certain goods to Y subject to the safe arrival of a ship from Cochin carrying
the goods. Y is to pay the price upon delivery. X' obligation to sell, thus, is dependent on the
safe arrival of the ship. This is a contingent contract.
(b) C lends Rs.10,000 to P upon S guaranteeing the repayment of the amount by P. This is a
contingent contract. In this contract, the liability of S (the surety) will arise only if P defaults.

(c) P insures his house against loss due to damage. The insurer's liability to pay will arise only
if there is any damage to the house.
Contract of guarantee and contract of insurance are the most familiar examples of a contingent
contract.

The element of contingency' does not exist in the following cases:

(a) If the performance of the promise depends on the mere will and pleasure of the promisor
(b) If for a certain service, the promisor agrees to pay a reasonable sum. In the above two
cases, the promise itself is not valid.

RULES IN RESPECT OF CONTINGENT CONTRACTS

The rules regarding contingent contracts are contained in Sections 32 to 36.
These are:
1. A contract, contingent upon the happening of an uncertain future event, cannot be enforced
unless and until that event has happened. If the happening of the event becomes impossible,
such a contract becomes void
Examples:
X contract to pay Y a certain sum of money when Y marries Z. Z dies without being married
to Y. The contract cannot be enforced.

2. A contract, contingent upon the non-happening of an uncertain future event, can be

enforced when the happening of that event becomes impossible.
Example:
M agrees to lend Rs. 5, 000 to N, if K, whom N has approached earlier for the money, does
not give. K dies. The contract can be enforced upon K's death.

3. If a contract is contingent upon how a person will act at an unspecified time, the event
shall be considered to become impossible when such person does anything that renders it
impossible.
Example:
A agrees to pay B a certain sum if B marries C. C marries D. The marriage of B to C must,
now be considered impossible, although it is possible that D may die and that C may
afterwards marry B.

4. A contract, contingent upon the happening of an uncertain future event within a specified
time, become void, if such event does not happen or its happening becomes impossible
before the expiry of that time.
Example:
L. promises to pay M a certain sum if a particular ship returns within a year. The contract
becomes void if the ship does not return within a year.

A contract, contingent upon the non-happening of an uncertain future event within a

specified time, may be enforced, if such event does not happen or it happening becomes
impossible before the expiry of that time.
Example:
L promises to pay M a certain sum if a particular ship does not return within a year. The
contract can be enforced if the ship does not return within a year.
5. 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.
Example:
X agrees to pay Y Rs. 2, 000 if two straight lines should enclose a space. The
agreement is void.

Distinction between a “Wagering Agreement’ and a ‘Contingent Contract’

Wagering Agreement Contingent Contract

1. It contains reciprocal (mutual) 1. It may not contain reciprocal
promises. promises.
2. It is not enforceable (void). 2. It is enforceable.
3. It is of a contingent nature. 3. It is not of a wagering nature.
4. One party wins and the other loses, 4. It is not a game of chance.
as it is a game of chance.
5. The future event determines the 5. The future event is only collateral.
very fate of the agreement.
 UNIT: 3
DISCHARGE OF CONTRACT
Discharge of contract takes place when the rights and obligations created by it come to
an end. It results in the termination of the contractual relationship between the parties to a
contract.
Modes or Methods of Discharge of Contract
Discharge of contract may take place by any of the modes:
(1) Discharge of contract by performance
(2) Discharge of contract by Mutual Consent
(3) Discharge of contract by Impossibility
(4) Discharge of contract by operation of law
(5) Discharge of contract by breach
(6) Discharge of contract by Lapse of time

(1) DISCHARGE BY PERFORMANCE

Discharge of contract by performance may fall under the following two categories:
(a) Actual Performance and
(b) Attempted Performance or Tender
(a)Actual Performance
The usual manner in which a contract is discharged is by the parties to it fulfilling their
respective obligations arising under it.
Example:
There is a contract between A and B by which the former is to sell his bike to the latter for Rs.
25, 000. The contract gets discharged upon A delivering the bike to B and B paying the
agreed sum to A.
(b)Attempted Performance
When the promisor offers to perform his obligation as per the terms of the contract but
the promisee does not accept the performance, it is known as 'attempted performance' or
'tender'. According to Section 38,

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.

Tender of performance, thus, is equivalent to actual performance. It does not make the
promisor responsible for non-performance and at the same time gives him the rights to sue the
promisee for the breach of contract

(2) Discharge of contract by Mutual Consent

A contract comes into existence by the mutual consent of the parties. In the same
manner, the parties may agree mutually to terminate it.
The various ways of discharge of contract by mutual consent are:
(a) Novation
(b) Rescission
(c) Alteration
(d) Remission
(e) Waiver
(f) Merger
(a) Novation
"Novation' refers to substitution of a new contract for the original contract The new contract
may be either between the same parties or between differem parties. The consideration for the
new contract is the discharge of the old contract.
Example:
X owes Y Rs. 10, 000 under a contract. It is agreed between X, Y and 2 that Y shall henceforth
accept Z as his debtor, instead of X. The debt due by X to Y under the old contract, thus, has
ended and a debt due by Z to Y has been created under the new contract.
(b) Rescission
It refers to cancellation of the contract. It may take place by the mutual consent of the parties
or by the failure of one of the parties to perform his promise.
Examples:
R, an actor, and K, a producer enter into a contract to make a film. After sometime, both find
the story outdated. They may rescind the contract by mutual consent.
(c) Alteration
Alteration of a contract takes place when, with the mutual consent of the parties, the terms of
the contract are varied or changed. The old contract, in such a case, is discharged.
Example:
M enters into a contract with N in April to let out his flat to the latter with effect from June
upon a monthly rent of Rs.5, 000. Later, M tells N that the flat will be ready for occupation
only with effect from August. N too requests M to reduce the monthly rent to Rs.4, 500. Both
M and N decide to give effect to these changes in the contract made earlier. The net result is
that the old contract gets discharged by reason of the alteration of terms.
(d) Remission
Acceptance of a lesser fulfilment of the promise is what is called 'remission'. Under Section
63, the promisee may dispense with or remit the performance of the promise by the promisor.
The promisee may also extend the time for performance or accept instead of it any satisfaction
which he thinks fit.
Example:
X owes Y Rs. 5,000. He pays Rs.3, 000 and Y accepts it in full settlement of his claim. The
whole debt is discharged.
(e) Waiver
'To waive' means not to insist on a certain obligation of a person arising under a contract under
certain circumstances.
Example:
The Government may always come forward to waive the interest due from farmers on their
farm loans during periods of monsoon failure.
(f) Merger
Merger takes place when an inferior right of a person arising under a contract combines with a
superior right arising under the same or a different contract.
Example:
R is a tenant, occupying the flat of S under a contract. Later, R agrees to buy the flat and enters
into a contract with S. R's inferior right as a tenant, thus, merges with his superior right as the
purchaser of the flat.

(3) Discharge of contract by Impossibility

The provisions in respect of an agreement to do an impossible act' are contained in Section 56.
According to Section 56, paragraph 1, 'An agreement to do an act impossible in itself is void'.
The existence of the impossibility may or may not be known to both the parties.
(a) When both the parties to the agreement know the existence of the impossibility - In
this case, the agreement is void ab initio.
Example:
X agrees with Y to discover treasure by magic. The agreement is void.
(b) When both the parties to the agreement do not know the existence of the impossibility
- In this case, the agreement is void on the ground of mutual mistake.
Example:
M agrees to sell his dog to N. Unknown to both the parties, the dog was dead at the time of
making the agreement. The agreement is void.
(c) When the promisor alone knows the existence of impossibility - In this case, the promisor
must compensate the promisee for any loss that the latter may sustain due to the non-
performance of the promise (Section 56, paragraph 3).
Example:
X, a Hindu, who is married to Y, promises to marry Z. Z is not aware of X's earlier marriage.
Such a practice of having more than one wife is known as | 'polygamy' and is not allowed under
the Hindu law. X must compensate Z.

SUPERVENING IMPOSSIBILITY
Impossibility that arises subsequent to the formation of the contract is known as
'Supervening Impossibility'. In such a case, the contract becomes void.

The various circumstances under which a contract is discharged due to supervening

impossibility are:
1. Destruction of the Subject Matter: If, after the formation of the contract, its subject matter
is destroyed without any fault of the parties, the contract gets discharged.
Examples:
(a) X agrees to sell 100 bales of cotton to Y at a certain price. Before delivery. the entire stock
of cotton lying in X's godown is destroyed in a fire accident. The contract between X and Y is
discharged.
(b) P enters into a contract with Q to sell his house at a certain price. Before the sale is effected,
the house is completely damaged in an earthquake. The contract between P and Q is discharged
on the ground of supervening impossibility.
2. Death or Personal Incapacity: If the performance of the contract depends on the personal
skill or ability of a party to the contract, the death or incapacity of such a party will result in
the discharge of contract.
Examples:
(a) M agrees to paint a picture for N on a particular day, payment for the work to be made on
completion of the work. M dies before performing the job. The contract between M and N
stands discharged due to supervening impossibility.
(b) S, a singer, enters into a contract with P to perform on a particular day. On the day of the
programme, S meets with an accident and is seriously injured.The contract of P with S is
discharged.
3. Change of Law: If, after the formation of the contract, change of law takes place that renders
the performance of the contract impossible, the contract gets discharged.
Examples:
(a) K enters into a contract to make a bulk purchase of lottery tickets from R. Before the date
of performance of the contract, the Government imposes a ban on lottery business. The contract
between K and R is discharged in view of change of law.
(b) W, whose land is located along the highway, enters into a contract with X to sell the land at
a certain price. Before the sale is effected, the Government, by a notification, acquires W's land
for the purpose of undertaking a highway development programme. The contract between W
and X is discharged.
4. Declaration of War: A contract made with an alien is either suspended or declared void if,
before its performance, war breaks out between the countries of the promisor and the promisee.
Example: M enters into a contract with N to import certain goods. But before the contract is
performed, war breaks out between the countries of M and N. The contract becomes void.
5. Change in the state of a thing forming the Basis of Contract: Any change in the state of
a thing forming the very basis of the contract results in the discharge of contract.
Example:
X contracts to marry Y. Before the date of marriage, X suffers head injury and goes into a coma
condition. The contract is discharged.

(4) DISCHARGE BY OPERATION OF LAW

A contract is discharged by the operation of law under the following circumstances:
1. By the Death of the Promisor:
Where the personal skill or ability of the promisor is the very basis of the contract, it gets
discharged on his death.
2. By Insolvency:
A contract gets discharged when a party to it is declared insolvent, i.e., is unable to pay his
debts.
3. By Unauthorised Material Alteration:
If a party to a contract makes any material alteration in the contract without the consent of the
other party, the other party can avoid the contract.
4.By liabilities and rights accruing to the same person:
A situation like this may arise when, for example, a bill accepted by a debtor is endorsed to
him.

(5) DISCHARGE BY BREACH

A breach of contract takes place when a party to a contract fails to fulfil his obligations arising
under it. The way in which breach of contract may occur may be shown as follows:
1. Actual breach
(a) On the due date
(b) During Performance
2. Anticipatory Breach
(a) Express
(b) Implied
(a) On the Due Date: When one party to a contract fails to perform his obligation on the due
date, actual breach of contract occurs.
Example:
X contracts with Y to sell and deliver 10 bags of rice @ Rs.1, 000 per bag on 1* June 2005. X
fails to deliver as promised. A breach of contract occurs and Y can initiate legal action.
(b) During Performance: Actual breach of contract also occurs when a party, after having
performed a part of the contract, refuses to perform further.
Example:
P contracts with Q to supply 500 kgs. of rice @ Rs.18 per kg. every month for the next 6
months. P supplies for the first three months and fails to supply thereafter. This results in a
breach of contract and Q can initiate legal action against P.

Anticipatory Breach of Contract

It takes place when a party to a contract declares his intention of not performing his
obligation before the performance is due. This may be done either in an express or in an implied
manner.
(a) Express Anticipatory Breach of Contract: When the promisor expressly makes known
to the promisee of his intention to commit a breach.
Example:
M contracts with N to supply 100 litres of coconut oil at a certain price on 30th June. If, before
30th June, M informs N that he will not be able to supply as promised, anticipatory breach of
contract is said to have occurred.
(b) Implied Anticipatory Breach of Contract: When the promisor does some act that makes
the performance of his promise impossible.
Example:
R contracts with S in May to sell his bike for Rs.25, 000 on 30th June. S comes to know that
on 1 June itself, R has sold the bike to T. This results in an anticipatory breach of contract in
an implied manner.
When a party to a contract commits a breach, the other party is discharged from his
obligation and he gets the right to proceed against the party at fault.

(6) DISCHARGE BY LAPSE OF TIME

Under the Limitation Act, 1963, a contract must be performed within a specified period
known as the period of limitation. If the promisee fails to take legal action within the period of
limitation, he loses his legal remedy.
When goods are sold on credit without any stipulation as to the time for payment, the
amount due must be recovered within 3 years from the date of delivery of goods.
Example:
P sold goods worth Rs. 10, 000 on credit to Q on 1ª June 2001 without any stipulation as to the
time for payment. P should have realised the amount before 1 June 2004.
When goods are sold on credit and the time for payment is specified in the contract, the
amount due must be recovered within 3 years from the date of expiry of the period of credit.
Example:
X sold goods worth Rs. 10, 000 on credit to Y on 1 June 2001 and allowed Y a period
of 3 months for payment. X should have recovered the amount before 1ª September 2004.

REMEDIES FOR BREACH OF CONTRACT

The parties to a contract are subject to certain obligations. The agreement is deemed to
have been carried out or executed when each party fulfills their end of the bargain. However, a
party to a contract may occasionally fail to fulfill any promise or obligation arising from it.
Under such circumstances, he is considered to be in violation of the contract.
Breach of contract, thus, takes place when a party to a contract fails to fulfil his
obligations arising under it.
Certain remedies are available to the plaintiff or the harmed party in the event of a
breach of contract. These are:
1. Rescission
2. Damages
3. Quantum Meruit
4. Specific Performance and
5. Injunction
1. RESCISSION
Rescission is the right of a party to a contract to avoid his obligations arising under it. A contract
may be rescinded or cancelled by the other party, who will then be released from their
obligations, if one of the parties breaches the agreement.
Example:
S agrees to supply a bag of rice to B on a specific date and B agrees to pay for it upon
delivery. S fails to supply. B is relieved of his obligation to pay.
The right of rescission is available to the plaintiff in case of a voidable contract. He,
however, will lose his right to rescind under certain circumstances as mentioned below:
(a) If, after becoming aware of his right to rescind, the affected party takes a benefit under
the contract.
(b) (b) If the subject matter of the contract has been consumed or destroyed.
(c) If a third party has acquired rights in the subject matter of the contract in good
faith and for value.
2. DAMAGES
'Damages are nothing but the monetary compensation awarded to the affected party by
the Court for the loss suffered by him in view of the breach of a contract. The goal of granting
damages is to partially restore the harmed party to his pre-damage status. However, in certain
situations and for all parties, damages might not be sufficient to give the impacted party full
relief.
The ruling in the well-known case of Hadley vs. The foundation for damages awards in both
India and England has been established by Baxendale.
Case: HADLEY vs. BAXENDALE
The functioning of a mill came to a halt due to the breakdown of a shaft (an important part
of a machine). The mill owner delivered it to a public carrier to be taken to the place of repair
service. The mill owner failed to inform the carrier that any delay in delivering the shaft for
service would result in loss of profits, The delivery of the shaft was delayed in transit beyond
a reasonable time. The Court held that the carrier was not liable for the loss of profits.

TYPES OF DAMAGES
The damages awarded to an affected party in case of breach of contract may be of the following
types:
(a) Ordinary damages
(b) Special damages
(c) Vindictive damages
(d) Nominal damages
(e) Damages for inconvenience and discomfort
(f) Damages for loss of reputation
(a) Ordinary Damages
The damages that arise 'naturally in the usual course of things from the breach' (Section 73) of
a contract are what are called 'ordinary damages'. Such damages are the direct consequence of
the breach of contract.
Example: D, a supplier of cement agrees to supply 50 bags of cement @ Rs.150 per bag to E,
a building contractor, on a certain date. E is to pay the price upon delivery. D fails to supply on
the due date and the open market price of cement on that date is Rs.165 per bag. E can claim
damages @ Rs.15 per bag.
(b) Special Damages
The damages that the parties to the contract know, when they make the contract, to be likely to
result from the breach (Section 73) are called 'special damages'. Such damages can be claimed
only if the unusual circumstances that would result in greater loss in case of breach are brought
to the notice of the promisor. In other words, an advance notice of such damages has to be
given.
Case: Simpson vs. London & N.W. Rail Co.
Certain specimens exhibited in a show were entrusted to a railway company to be transported
to another place where a show was to be held. The person entrusting made it very clear that the
specimens must reach the place of destination on a particular day failing which he would suffer
heavy loss. Due to the carelessness of the railway company, the specimens arrived late for the
show. It was held that the plaintiff could claim damages for the loss of profit at the show.
(c) Vindictive Damages
These are also known as 'exemplary damages' or 'extraordinary damages'. Damages of a
vindictive nature, i.e., tending to take revenge, can be claimed only under the following two
circumstances:
(a) Breach of promise to marry and
(b) Wrongful dishonour of a cheque by a banker, i.e., when the customer has sufficient
funds in his account.
Case: I.V Rajagopal vs. Canara Bank
A cheque issued in favour of the Telephone Department towards the payment of a bill by a
company was wrongly dishonoured. This led to the termination of service of the Public
Relations Officer of the company who claimed a lumpsum to cover the unexpired period of his
service. The Court held the bank liable for the wrongful dishonour of the cheque and directed
it to pay the plaintiff the lumpsum claimed as exemplary damages.
(d)Nominal Damages
These are damages awarded to the affected party who has not actually suffered any loss due to
the breach of contract by the other party. Such damages, when awarded, may give the plaintiff
the satisfaction that he has proved his point and won.
Case: Brace vs. Calder
In this case, B was given employment for a certain period by a partnership firm comprising of
four partners. The firm was dissolved before the expiry of the period for which B was
employed. Two of the partners decided to continue the business and offered to employ B. B
refused. It was held that B could claim only nominal damages, as he suffered no loss.
(e)Damages for Inconvenience and Discomfort
Such damages are awarded to the aggrieved person for the physical inconvenience and
discomfort caused to him.
Case: Hobbs vs. London & S.W. Rail. Co.
In this case, H, with his wife and children, took a ticket for a midnight train. But they were
transported to a wrong place due to the negligence of the railway authorities. As a result, they
had to walk several miles to reach home. It was held that I could recover damages for the
inconvenience caused to him and his family. It was further held that he could recover nothing
for the medical expenses of his wife who caught cold as it was a remote consequence.
(f) Damages for loss of reputation
A businessman's ability to maintain his reputation and continue operating his enterprise
depends critically on his creditworthiness. A businessman's reputation will undoubtedly suffer
if a cheque he writes is returned unpaid.
When a businessman's cheque is dishonoured by a bank without authorization, he is
entitled to compensation for any harm the bank may have done to his company's reputation.
'The smaller the amount of the cheque dishonoured, the greater the amount of damages
awarded' is the bank's basis for awarding damages.

Cost of suit
The affected party filing a damage suit is also entitled to recover the cost of the suit (the legal
expenses) from the defendant.

Liquidated Damages and Penalty

'Liquidated Damages' represent a sum fixed by the parties to a contract, at the time of
its formation, to be a fair and genuine pre-estimate of the probable damages likely to arise in
case of breach.
'Penalty' on the other hand, represents a sum mentioned in the contract, which is
disproportionate to the damages likely to arise in case of breach.
Under the English Law, liquidated damages can be enforced and not penalty. Courts in
India allow only reasonable compensation (Section 74).

Payment of Interest
A stipulation for interest in case of default in payment may or may not be in the nature of
penalty. If it is in the nature of penalty, the Court may not allow it. The following guidelines
are followed with regard to payment of interest
(a) Payment of interest in case of default is not in the nature of penalty if the
interest is reasonable.
 (b) Payment of higher interest in case of default from the date of the contract is always in
the nature of penalty.
(c) Payment of higher interest from the date of default may or may not be in the nature of
penalty depending on the terms and the circumstances of each case.
(d) Payment of compound interest on default at the same rate as simple interest is not in
the nature of penalty.
(e) Payment of compound interest on default at a rate higher than the rate of simple interest
is in the nature of penalty.
(f) Payment of interest at a rate lower than the rate agreed, if interest is paid on the due
date, and payment of interest only at the rate agreed, if the debtor fails to pay on the
due date, will not be in the nature of penalty.

(3) QUANTUM MERUIT

"Quantum Meruit' means 'as much as merited' or 'as much as earned'. In simple terms, it
means payment in proportion to the amount of work done.
A person, who has started doing some work for another under a contract but is unable
to complete it, can claim his remuneration for the work already done. Similarly, if a person
requests another to render some service and does not mention anything about remuneration,
the person rendering the service is entitled to receive quantum meruit, i.e., what he deserves.
The right to claim upon quantum meruit does not arise out of contract. It arises the right
to claim upon quantum out of a quasi-contractual obligation as required by law.
When will a claim upon Quantum Meruit Arise?
The following are the various circumstances in which a claim upon quantum meruit will arise:
1. When an agreement is void or when a contract becomes void (Section 65): In such a
case, the person who has received any benefit must restore it to the person who has provided it
or compensate him for the same.
Example:
A person is appointed as a clerk in a concern. After he has served for 3 weeks, it has been found
out that certain rules have not been followed in his appointment and, therefore, his service has
been terminated. He can get payment for the work he has done upon quantum meruit.
2. When a person does something without any intention to do so gratuitously (Section 70):
In such a case, the person getting the benefit must compensate the person who has given it.
Examples
A trader leaves certain goods at X's residence. X treats the goods as his own. He has to pay the
trader.
3. When there is no specific agreement as to remuneration for a certain service rendered:
In such a situation, the beneficiary has to pay the person who has rendered the service a
reasonable remuneration. If need arises, the court may be approached to determine the
reasonable remuneration.
4. When one party is prevented from completing his task
Case: Planche vs. Colburn
In this case, P was engaged to write for a magazine a series upon a certain fee. After the release
of a few issues, the publication of the magazine was stopped. The Court held that P could claim
payment upon quantum meruit for the work already done.
5. When a contract is divisible, i.e. does not require complete performance for claiming
remuneration: In such a case, the party who has rendered some service can claim payment upon
quantum meruit. But if the contract is indivisible, i.e., requires complete performance for
claiming remuneration, the party who has rendered some service cannot claim payment for the
work already done.
Case: Sumpter vs. Hedges
In this case, S, who undertook to build a house for a certain sum for H, abandoned the contract
after having done the work up to a certain level. Afterwards, H completed the work himself. It
was held that S could not get payment for the work already done by him upon quantum meruit.
6. When an indivisible contract is fully but badly performed: In this case, the person who
has done the work can claim his remuneration but the other party can make a deduction for bad
work.
Case: Hoenig vs. Issacs
X contracted to decorate Y's flat for a sum of 750 pounds. Payment was to be made upon the
completion of the entire work. The work was fully but badly completed. A sum of 204 pounds
was required to rectify the defect. The Court held that X could claim only a sum of 546 pounds
for the work done by him.

(4) SPECIFIC PERFORMANCE

Payment of damages to the aggrieved or affected party, in case of breach of contract, may not
always be an adequate remedy. In certain cases, the Court may direct the party committing the
breach to fulfil his obligation according to the terms of the contract.
‘Specific performance' thus, is a direction by plaintiff, requiring t the Court, on a suit
filed by the plaintiff, requiring the other party to fulfil his promise.
The Court may order specific performance of the contract under the following
circumstances:
(a) Where payment of damages will not be an adequate remedy.
(b) Where there exists no basis for determining the actual damage suffered by the plaintiff.
(c) Where the defendant is not in a position to pay monetary compensation.
However, no suit for specific performance is maintainable under the following
circumstances:
(a) Where damages provide adequate relief.
(b) Where the contract, by its very nature, is revocable.
(c) Where the contract is of a personal nature, e.g., contract to marry.
(d) Where the contract is made by a company in excess of its powers as laid down in its
Memorandum of Association.
(e) Where the Court cannot supervise the performance of the contract, e.g., construction work.
(f) Where the contract is made by trustees in breach of their trust.

(5) INJUNCTION
'Injunction' is an order of the Court preventing a person from doing a particular act. It is also
known as 'Stay Order'.
Case: Warner Bros. vs. Nelson
N, a movie actress in this instance, committed to work only for W for a full year. On the other
hand, she agreed to work for Z during the year. She could be prevented from doing so by an
injunction, it was decided. So, in order to prevent someone from acting contrary to his word,
an injunction is required.
 QUASI-CONTRACTS
A quasi-contract is not a contract entered into intentionally by the parties. It is an
obligation created by law on a person in the absence of any agreement.
A quasi-contractual obligation arises automatically under the following circumstances:
a) A person receives a certain benefit that another, by law, is better entitled to receive.
b) A person receiving a certain benefit from another without paying for it.
In both the cases there is no contract between the parties. But law creates one in order to
put the parties in the position in which they would have been had there been a contract. This is
what a quasi-contract is all about.
The basic philosophy of quasi-contracts is that a person shall not be allowed to flourish
unjustly at the cost of another.

Provisions regarding quasi-contractual

1. Claim for necessaries supplied to a person incapable of contracting (Section 68):
If a person, incapable of entering into a contract, or anyone 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.
Examples:
(a) S supplies T, a lunatic, with necessaries suitable to his condition in life. S is entitled to get
reimbursement from T's property.
(b) X supplies the wife and children of Y, a lunatic, with necessaries suitable to their condition
in life. X is entitled to be reimbursed from Y's property.
2. Reimbursement of amount paid by a person on behalf of another (Section 69):
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.
Examples:
(a) A lessee pays, in respect of the land he holds under a lease, certain amounts due by the
landlord to the Government. This he does to save the lease and the land from being sold. The
landlord is bound to reimburse the amount to the lessee.
(b) X pays the electricity bill of his neighbour Y when the latter is not in station. This X does
to avoid disconnection. Y has to reimburse the amount to X.
But to apply Section 69, it is important that the payment made must be:
(a) such as another party is bound by law to pay; and
(b) for the protection of his interest.
Case: Abid Hussain vs. Ganga Sahai
Certain goods belonging to A were wrongfully attached to realise certain amounts due by G to
the Government. A paid the dues to save the goods from being sold. The Court held that he was
entitled to get reimbursement from G.
3. Obligation of a person enjoying the benefit of a non-gratuitous act (Section 70):
Where a person lawfully does anything for another person or delivers anything to him, not
intending to do so gratuitously (freely), 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.
Examples:
(a) A trader leaves certain goods at X's residence by mistake. X starts using the goods. He has
to pay the trader.
(b) M saves N's property from fire. He is not entitled to compensation from N if the
circumstances show that he intended to act gratuitously.
Section 70, however, will be applied only when the following conditions Sare fulfilled:
(a) The act done must be lawful.
(b) It must have been done without any intention to do it free of charge.
(c) The person for whom the act is done must have enjoyed the benefit of it.
Case: Damodar Mudaliar vs. Secretary of State for India
In this case, the Government, without any intention to act gratuitously, carried out certain
repairs to a tank that was irrigating a village. It was held that all those who enjoyed the benefit
should contribute.
4. Responsibility of finder of goods (Section 71):
A person who finds goods belonging to another, and takes them into his custody, is
subject to the same responsibility as a bailee. A bailee is a person to whom certain goods have
delivered for a certain purpose, e.g., safe custody.
The finder of goods must take as much care of the goods as a man of ordinary prudence
would, under similar circumstances, take of his own goods of the same bulk, quality and value.
It is also his duty to take all the necessary steps to trace out the owner.
Under the following circumstances, the finder gets the right to sell the goods:
(a) If the goods are in a state of perishing;
(b) If the owner cannot, with reasonable diligence, be found out;
(c) If the owner, when traced, refuses to pay the lawful charges of the finder, and
(d) If the lawful charges of the finder amount to two-thirds of the value of the thing found
(Section 169).
Example:
X finds a diamond ring on the road. He gives a newspaper advertisement to trace out the owner.
The owner, on being found, cannot refuse to reimburse the amount spent by X to trace him out.
X need not handover the ring until his lawful charges are reimbursed.

5.Liability of a person to whom money is paid or thing delivered by mistake or under

coercion (Section 72):
A person to whom money has been paid or anything delivered by mistake or under coercion
must repay or return it.
Examples:
(a) X and Y jointly owe Rs. 500 to Z. X alone pays the amount to Z. Y, without knowing
this fact, also pays Z. Z has to return the amount to Y.
(b) A railway company refuses to deliver certain goods to a consignee unless he pays certain
unauthorised charges. The consignee pays the charges to obtain delivery. Under Section 72,
He can recover the unauthorised charges collected.
 PERFORMANCE OF CONTRACT OF SALE

Performance of Contract of Sale

A contract of sale is said to be performed when the seller gives delivery of the goods to the
buyer and the buyer makes payment for the goods.

Delivery of Goods
'Delivery' means voluntary transfer of possession of goods from one person to another - Section
2 (2). Delivery of goods may be of three types as shown below:
 Actual delivery: It takes place when the seller or his agent physically hands over the
goods to the buyer.
 Symbolic delivery: Actual delivery may not always be possible particularly when the
goods are of a bulky nature. Handing over of the warehouse key to the buyer is symbolic
delivery of goods.
 Constructive delivery: Where a third person, may be a bailee, who is in possession of
the goods of the seller at the time of the sale acknowledges to the buyer that he holds
the goods on his behalf, there takes place constructive delivery.
Example:
X sells to Y 20 bags of rice lying in Z's godown. Z delivers the goods to Y as per X's advice.
This is what is known as constructive delivery.

RULES REGARDING DELIVERY OF GOODS

The rules, contained in The Sale of Goods Act, in respect of delivery of goods are explained
below:
1. Payment of Price After Delivery (Section 32): Delivery of the goods and payment of the
price must be in accordance with the terms of the contract. Unless otherwise agreed, delivery
of the goods and payment of the price are concurrent conditions. The seller shall be ready and
willing to give possession of the goods to the buyer in exchange for the price and the buyer
shall be ready and willing to pay the price in exchange for the possession of the goods.
2. Mode of Delivery (Section 33): The mode of delivery may be actual, symbolic or
constructive.
3. Effect of Part Delivery (Section 34): A delivery of part of the goods in the process of
delivery of the whole has the same effect, for the purpose of passing the property in such goods,
as delivery of the whole. But a delivery of the goods, with an intention of severing it from the
whole, does not operate as delivery of the remainder.
Example:
X sells 500kgs of potatoes to Y. Y gets 300kgs measured and takes delivery and agrees to collect
the remainder after two days. Here, the delivery of 300kgs of potatoes has the same effect, for
the purpose of passing of property to the buyer. as delivery of 500kgs.
4. Buyer to Apply for Delivery (Section 35): The seller is not bound to deliver the goods until
the buyer applies for delivery. Where the goods are subsequently acquired by the seller, he
should inform the buyer about it and the buyer should then apply for delivery.
5. Place of Delivery - Section 36 (1): If the contract itself specifies the place where the goods
shall be delivered, the goods shall be accordingly delivered by the seller at that place during
business hours on a working day. If the contract is silent about the place of delivery, the goods
shall be delivered at the place at which they are at the time of sale.
6. Goods in Possession of a Third Party-Section 36 (3): When at the time of the sale the
goods are with a third party, there is no delivery by the seller to the buyer until such third party
acknowledges to the buyer that he holds them on his behalf. But if the goods have been sold
by the issue or transfer of any document of title to goods like warehouse receipt, railway receipt
etc., the third party's consent is not required.
7.Time of Delivery - Section 36 (4): If the contract is silent about the time of delivery of the
goods, the goods shall be delivered by the seller to the buyer within a reasonable time.
8. Cost of Delivery - Section 36 (6): Unless otherwise agreed, all expenses of delivery and
also incidental expenses are to be borne by the seller. All expenses of obtaining delivery and
also incidental expenses are to be borne by the buyer.
9. Delivery of Wrong Quantity (Section 37): The quantity of goods delivered by the seller
should be strictly in accordance with the terms of the contract, Otherwise the buyer is entitled
to reject the goods.
10. No Instalment Delivery of Goods (Section 38): Unless otherwise agreed, the seller is not
entitled to deliver the goods by instalments and if he does so, the buyer is not bound to
accept the goods.
11. Delivery of Goods to a Carrier (Section 39) Where the goods are delivered to a carrier,
as per the contract, for the purpose of transmission to the buyer, it shall be deemed to be a
delivery of the goods to the buyer. If the goods are sent by sea route, the seller must inform the
buyer in time to get the goods insured. Otherwise the goods will be at the seller's rişk during
such transit.

Acceptance of delivery (Section 42)

If the buyer wrongfully refuses to accept the goods under the contract, he is liable for damages.
The buyer is deemed to have accepted the goods if he -
a) informs the seller about it, or
b) does any act which is inconsistent with the ownership of the seller, e.g., making a resale
or pledging; or
c) retains the goods even after the expiry of a reasonable time without any intimation to
the seller that he has rejected them.

RIGHTS OF THE BUYER

The rights of the buyer, in a contract of sale are as follows:
 The buyer has the right to have delivery of the goods as per the contract (Sections 31
and 32).
 If the seller does not send, as per the contract, the right quantity of goods to the buyer,
the buyer can reject the goods (Section 37).
 The buyer has a right not to accept delivery of the goods by the seller in instalments
(Section 38).
 If the goods are sent by sea route by the seller, the buyer has a right to be informed by
the seller so that he may get the goods insured (Section 39).
 The buyer has a right to examine the goods which he has not seen earlier before giving
his acceptance for the same (Section 41).
 Rights against the seller for breach of contract:
Example: To claim damages - If the seller wrongfully refuses to deliver the goods to
the buyer as per the contract, the buyer may sue the seller for damages for non-delivery.
The amount of damages will be the difference between the contract price and the market
price of the goods (Section 57).

DUTIES OF THE BUYER

The following are the duties of the buyer:
 It is the duty of the buyer to accept the goods and pay for them in accordance with the
terms of the contract (Section 31 and 32).
 It is the duty of the buyer to apply for delivery (Section 35).
 It is the duty of the buyer to demand delivery of the goods within a reasonable time-
Section 36 (4).
 If the contract specifically provides for the delivery of the goods by the seller by
instalments, the buyer shall accept such a delivery - Section 38 (2)
 It is the duty of the buyer to take the risk of deterioration in the goods that is necessarily
incident to the course of transit - (Section 40) Example: Rusting of iron.
  If the buyer refuses to accept the goods, it is his duty to inform the seller about it
(Section 43).
 If the seller delivers the goods as per the contract, it becomes the duty of the buyer to
take delivery of the same within a reasonable time. He remains liable to the seller for
any loss arising on account of his refusal to take delivery (Section 44).
 If the seller has already passed on the ownership rights to the buyer, the latter has the
duty to pay the price as per the terms of the contract (Section.55).
 If the buyer wrongfully refuses to accept and pay for the goods, he will have to
compensate the seller for damages for non-acceptance (Section 56).

Goods
As per section 2(7) of the sale of goods act good a can be defined as every moveable property
other than actionable claims and money are considered as goods. An actionable claim is
something which a person cannot use or enjoy but which can be recovered by him through a
suit or an action in the court of law, for example, a debt due to a person from another. Stocks,
shares, growing crops (separated) Mp v Orient Paper Mill court held that standing timber is a
movable property if under any contract it has to be severed but the severance should take place
when timber still vest in contracting parties, goodwill, trademark, patent, copyright,
ancient/rare coins all can be termed as goods except immovable property, broadband is sale
(Airtel V Karnataka), Software St Albans City And District Council v International Comp
Ltd in this case, The appellant was the defendant company which had supplied computer
software to the respondent, and for which the respondent had been awarded £1.3 million.

Types of goods
According to section 2(7) of the sale of goods act 1930, every moveable property other than
actionable claims and money is considered as goods. An actionable claim is something which
a person cannot use or enjoy but which can be recovered by him through a suit or an action in
the court of law, for example, a debt due to a person from another. Stocks, shares, growing
crops(separated), goodwill, trademark, patent, copyright, ancient/rare coins all can be termed
as goods except immovable property.
Section 6 sale of goods act bifurcates goods into 3 types: existing goods; future goods;
contingent goods.
 Existing goods: At the time of making the contract, ownership or possession of the
goods is under the authority of the seller and after fulfilling the obligations of the
contract seller has all legal rights to transfer the ownership or possession of those goods
to buyer, those goods are known as existing goods under section 6 of the sale of goods
act. Existing goods may be classified as:
 Ascertained goods: There are certain kinds of goods which need to be identified at the
time of making the contract, those goods needed to be selected specifically are also
known as specific goods. From a lot of unascertained goods when a specific quantity is
set aside after making the contract of sales, it will be considered as specific goods.
For instance, A enters into an agreement with B to sell a car, at that A was having 5
similar looking cars, when B specifically chooses a car of a particular from an
unascertained lot of 5 cars, then the selected car will be considered as ascertained goods.
 Unascertained goods: The goods which are not identified specifically but are indicated
by description or sample from a lot of goods are known as unascertained goods. For
instance, A enters into an agreement with B to sell a car, at that A was having 5 same
cars, when B does not specifically choose a car but gives the description of car which
includes colour, then it will be considered as unascertained goods.
 Future goods: The goods which made or acquired or produced on demand of the buyer
and does not exist at the time of making the contract are known as future goods. These
types of goods are not a contract of sale but agreement to sale because the essential
 condition of existence of goods is not fulfilled and seller cannot transfer which is not
yet produced.
 Contingent goods: These goods are the type of future goods, the acquisition of which
by the seller is dependent on a contingent event which may or may not happen. The
contract is not a sale but an agreement to sell. For instance, when A proposes to sell his
car to B if and only if A’s brother returns from England and return his car.

Agreement to sale versus sale

Basis of
Sale Agreement to sale
distinction
The execution is complete in a sale, The execution is yet to take place, i.e. the
Nature
i.e. the contract is executed. contract is executory
At the time of the contract, the At the time of the contract, the ownership
Transfer of ownership of goods is transferred to of goods is not transferred to the buyer.
Ownership the buyer. Thus, the buyer becomes The transfer takes place on a later date or
the owner when the sale is made. on fulfilment of a condition.
The buyer has the right to use the This contract is between the buyer and the
Right of goods he buys i.e. he becomes the seller. It does not give any right to the
Usage sole owner of goods and can use buyer to use the goods until the ownership
them in any manner. of goods is transferred to him.
If the buyer fails to take the delivery and
If the buyer fails to make payment
Consequence make the payment, the seller can sue the
for goods, the seller can sue the
of Breach buyer for damages only and not for the
buyer for such payment.
cost of goods.
Unless there is a contract to the
contrary, any damage or loss to Unless there is a contract to the contrary,
Risk of Loss goods is to be borne by the buyer any damage or loss to goods is to be borne
even if he has not received the by the seller only.
delivery of the goods.
If the seller is declared insolvent
before the delivery of goods, the
Insolvency of buyer can claim the goods from the The buyer has no right to claim the goods
seller official receiver of the seller in the event of insolvency of the seller.
because he is the legal owner of the
goods.
If the buyer is declared insolvent before
The seller is required to deliver the
Insolvency by making the payment for goods, the seller
goods to the official receiver of the
buyer has the right to refuse the delivery of
buyer becomes insolvent.
goods.
If the seller defaults in delivering
The buyer can sue for damages only in
the goods, the buyer can claim
Default by case the seller defaults in delivering the
damages from the seller and can
seller goods because the owner of the goods is
also file a suit against the third party
the seller.
as the owner of the goods.
 RIGHTS OF AN UNPAID SELLER

An unpaid seller is one to whom -

(a) the whole of the price has not been paid; or
(b) a Bill of Exchange or such other negotiable instrument has been given but the same has
been dishonoured Section 45 (1).
Rights of an unpaid seller against the goods
These rights of the unpaid seller are known as 'rights in rem'. If the property in the goods has
already been passed on to the buyer, the unpaid seller has the following rights against the
goods:

RIGHT OF LIEN - Sections 46 (1) (a), 47 and 48

The right of lien is the right to retain possession of the goods until payment for the same is
made. Such a right is available to the unpaid seller having possession of the goods if the
goods have been sold without any stipulation as to credit or they have been sold on credit, but
the term of credit has expired. Such a right is also available in case the buyer has become
insolvent.
Rules regarding lien:
(a) Possession of goods is important to exercise the right of lien.
(b) The right of lien is not affected even if the seller has parted with the document of title to
the goods.
(c) The possession of the goods by the seller must not expressly exclude the right of lien.
(d) The lien can be exercised by the unpaid seller only for the price due and not for any
other charges like warehouse rent or carriage expenses,
(e) If the unpaid seller has already made part delivery of the goods to the buyer, he may
exercise lien on the remainder.

TERMINATION OF LIEN (Section 49)

The unpaid seller loses his right of lien on the goods in the following circumstances:
(a) If he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods.
(b) If the buyer or his agent lawfully obtains possession of the goods.

Case: Knights vs. Wiffen

In this case, a lawn-mower was sold by X to Y. But the seller refused to deliver it to the
buyer until he was paid for. But X lent the lawn-mower to Y. The Court held that the
seller did not lose his right of lien.

RIGHT OF STOPPAGE IN TRANSIT - Sections 46 (1) (b), 50, 51 and 52

It is a right of stopping the goods while in transit after the unpaid seller has lost possession of
the goods. This right enables the seller to regain possession. Such a right is available to the
unpaid seller -
(a) when the buyer becomes insolvent; and
(b) when the goods are in transit.

Goods are deemed to be in course of transit if they are delivered to a carrier or other bailee
for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of
them.

How Stoppage in Transit if Effected?

The unpaid seller may exercise his right of stoppage in transit -
(a) by taking actual possession of the goods; or
(b) by giving notice of his claim to the carrier or other bailee in whose possession the goods
are.
 RIGHT OF RE - SALE - Sections 46 (1) © and 54
The unpaid seller can re-sell the goods
a) if the goods are of a perishable nature; or
(b) if he has given notice to the buyer of his intention to re-sell and the buyer has not within
a reasonable time paid the price.
If on resale, the seller incurs loss, he can claim the same from the buyer as damages for breach
of contract. If there is a profit on resale, he is not bound to hand it over to the buyer.

Right of Withholding Delivery - Section 46 (2)

If the property in the goods has not passed to the buyer, the unpaid seller has, in addition to
all other remedies, the right to withhold delivery.

Rights of an unpaid seller against the buyer personally

These rights of the unpaid seller against the buyer are called 'rights in personam'. These are as
follows:

1. Suit for Price (Section 55) - If the buyer wrongfully refuses to pay for the goods, the seller
may sue him for the price whether the property in the goods has passed to the buyer or not.

2. Suit for Damages for Non-Acceptance (Section 56) - If the buyer wrongfully refuses to
accept and pay for the goods, the seller may sue him for damages for non-acceptance.

3. In case of Repudiation of Contract (Section 60) - If the buyer abandons the contract before
the date of delivery, the seller may treat the contract as existing and wait till the date of delivery
or he may treat the contract as cancelled and sue the buyer for damages for the breach.

4. Suit for Interest - Section 61 (2) (a) - If there is a specific agreement between the seller and
the buyer as to interest on the price of the goods from the date on which payment becomes due,
the seller may recover interest from the buyer. If there is no such agreement, the seller may
charge interest on the price when it becomes due from such day as he may notify to the buyer.

CONDITIONS AND WARRANTIES

As far as the cycle of payment of the price is concerned, the stipulation in that regard is not
considered to be the essence of the contract of sale where a certain reason arises from the
contractual terms. The distribution of goods should, however, be achieved without delay.
Whether or not such a clause is of the form of a contract depends on the agreed conditions.

The price of goods can be fixed by contract or could be decided to be fixed in a particular
manner at a later stage. The stipulations concerning the time of delivery are generally the crux
of the contract.[3]

A condition is the basis of the whole contract and an integral part of the success of the contract
in the sense of the Sale of Goods Act, 1930. The violation of the terms gives the aggrieved
party the right to consider the contract as being repudiated. In other terms, if a condition is not
met by the seller, the buyer has the option of repudiating the agreement or refusing to accept
the goods. If the customer has already paid, the prices may be recovered and penalties may also
be demanded for the violation of the contract.

Kinds of Conditions
1. Expressed Condition – In a legal agreement, the dictionary sense of the word is
defined as a declaration that says something must be done or occurs in the contract. It
is said that the conditions which are imperative for the execution of the contract and are
incorporated into the contract at the will of both parties are conveyed.
 2. Implied Condition – There are often implicit requirements that are presumed by the
parties in various forms of sales contracts. Say, for example, the presumption of selling
by definition or selling by sample. In Sections 14 to 17 of the Selling of Goods Act,
1930, implied conditions are defined. These implicit conditions are assumed by the
parties, unless otherwise agreed, as if they were contained in the contract itself.
In the event of a violation of a condition, the aggrieved party may refuse the contract or seek
damages. Only in the case of a breach of the guarantee can the aggrieved party demand
damages. Violation of the condition may be deemed to be a violation of the guarantee. It is not
necessary to see a violation of the promise as a breach of the condition.

Implied condition as to title

The basic, but important, implied conditions on the part of the seller in any sales contract are
that –
(1) He has the authority to sell the goods.
(2) Secondly, he would have the right to sell the products at the time of execution of the
contract in the event of an agreement to sell.
Consequently, if the seller does not have the right to sell the goods listed, the buyer may refuse
or reject the goods. In addition, he is entitled to recover the full price paid by him.
The group purchased a second-hand motor car from the former in Rowland v. Divall [4]and
paid for the same. He was stripped of it after six months, as the vendor had no right to sell the
vehicle. It was held that it was the right of the aggrieved party to recover the money.

Implied condition as to the description

Moving to Section 15 of the Act, there is an implicit provision in the contract of sale that the
goods must comply with the definition. The purchaser has the option of either approving or
refusing products that do not adhere to the product description. For instance, say: where Ram
buys a new car that he thinks is new from “B” and the car is not new. The car can be rejected
by Ram ‘.
Goods must be of merchantable quality, referring to Section 16(2) of the Act in question. In
other words, the items are of such high quality that a rational individual will consider them.
For example, a B-bought sugar sack that was destroyed by ants. The marketability situation
here is broken and it is unfit for use. From this section, it should be noted that before approving
it, the buyer has the right to inspect the products. But a mere opportunity would not be sufficient
to deprive the purchaser of his rights without an actual review. If, however, the inspection does
not show the defect, but the goods are found to be defective within a fair period of time, he
may dismiss the contract even if he approves the goods.
The implied conditions must be wholesome and sound and fairly fit for the purpose for which
they are purchased, especially in the case of eatables. For example, Amit buys milk that
contains typhoid germs and he dies because of its consumption. His wife will be entitled to
seek damages.

Implied condition as to sale by sample

In the light of Section 17 of the Act, the following implied conditions can occur in a contract
of sale by sample-
(1) In terms of consistency, size, colour, etc., the actual products will correlate with the
sample.
(2) The purchaser is given a fair opportunity to compare the items with the sample.
(3) In addition, the products are free of any flaws that make them irreplaceable.
For example, through sample sales to the French Army, a company sold some shoes made of a
special kind of sole. It was later discovered when the bulk was shipped that they were not made
from the same sole. The customer was entitled to the price and loss compensation.

Implied condition as to Sale by sample as well as a description

Referring to Section 15 of the Sale of Goods Act, 1930, both the sample and the description of
the goods delivered must be compatible with both the sample and the description. There was a
selling of international, refined rape-oil in Nichol v. Godis[5]. The supplied oil was the same
as the sample, but a mixture of other oil was also available. In this case, it was held that the
vendor was liable to refund the money charged.
Warranty is the additional stipulation and a written guarantee that is collateral to the main
purpose of the contract. The effect of a breach of a warranty is that the aggrieved party cannot
repudiate the whole contract however, can claim for the damages. Unlike in the case of breach
of condition, in the breach of warranty, the buyer cannot treat the goods as repudiated. [6]

Kinds of Warranty
Expressed Warranty – The warranties which are generally agreed by both the parties and are
inserted in the contract, it is said to be expressed warranties. [7]
Implied Warranty – Implied warranties are those warranties which, despite the fact that the
parties did not expressly include them in the contract, the parties believed had been integrated
into the sales contract. The following are the implicit warranties in the contract of sale, subject
to the contract:
Warranty as undistributed possession: Section 14(2) of the Act provides that an implicit
promise exists that the consumer would enjoy uninterrupted possession of the products. In fact,
if the buyer is later disturbed at some stage by getting possession of the goods, he may sue the
seller for breach of warranty.
For example, ‘X’ bought a second-hand bike from ‘Y’. He used the bike, unbeknownst to the
fact that the bike was stolen. He was forced later to return the same one. X is entitled to sue Y
for violation of the guarantee.
Warranty as to freedom from Encumbrances: There is an implicit warranty in Section 14(3)
that the products are free of any costs or burdens on the part of any third party not known to
the consumer. However, if it is proven that at the time of entering into the contract, the
purchaser is aware of the truth, he will not be entitled to any claim.
Implied warranty to disclose Dangerous nature of the goods sold
If the products sold are potentially hazardous or likely to be hazardous and the buyer is not
aware of the fact, it is the seller’s responsibility to warn the buyer of the likely risk. The seller
would be responsible if there is a violation of this warranty.

DISTINCTION BETWEEN CONDITION AND WARRANTY

CONDITION WARRANTY
A condition is a stipulation which is essential A warranty is a stipulation which is collateral
to the main purpose of the contract. to the main purpose of the contract.
For the breach of condition, the affected For the breach of warranty, the affected party
party can abandon the contract of sale. can claim damages only.
A breach of condition may be treated as a A breach of warranty cannot be in any way
breach of warranty. This happens if the treated as breach of condition.
affected party decides to claim damages only.