INDIAN CONTRACT ACT,

1872
 • An Agreement is each and every promise which is made.

ü “Social” - Social Agreements – Promises made between friends, family, loved ones –

DOES NOT POSSESS THE INTENTION TO CREATE A LEGAL SERIOUSNESS.

ü “Commercial” – Commercial Agreements – Rent Agreements, Employment

Agreements, Legal commercial Transactions, Sale Deed (Buying/Selling of Property)

etc. - DOES POSSESS THE INTENTION TO CREATE A LEGAL SERIOSNESS

AGREEMENT
V. • An Agreement, in general terms, means agreeing or coming in harmony with regard to the

CONTRACT terms and conditions.

ü Informal arrangement or mutual understanding, attached with a promise to fulfil an

obligation.

• However, an agreement does not create legal obligation/compulsion on the parties to

complete their obligations as mutually agreed.

• Nothing can be done if a party fails to perform or refuses to perform or complete their

obligations, as initially agreed.

• Can be Oral or Written

• May or May not be enforceable by Law –

ü Legally Enforceable Agreements – CONTRACTS

ü Legally Not Enforceable Agreements – NO CONTRACT (it will remain an agreement only) e.g. ‘Lets agree to

KILL someone’

AGREEMENT = SET OF “PROMISES” MADE WITH “NO LEGAL SANCTION OR

ENFORCEABILITY” ATTACHED TO IT.

• CONTRACT is a formal arrangement or understanding with a promise to fulfill an

obligation, sanctioned or approved by court of law

ü It has to be a legal activity.

• Contract creates legal obligation on the parties to complete their obligations as mutually

agreed

ü It creates right in the hands of the party to ensure that the task accepted must be

performed.

• Should be WRITTEN, can be ORAL

• Oral Contracts – Requires Circumstantial Evidences to prove or establish in court

CONTRACT = AGREEMENT + LEGAL ENFORCEABILITY

To Conclude, “ALL CONTRACTS ARE AGREEMENTS, BUT ALL AGREEMENTS MAY

NOT LED TO A VALID CONTRACT”

• AGREEMENT
CONTRACT
 ESSENTIALS OF A VALID CONTRACT

In order to create a valid contract, the following elements should be present:

v Intention to create legal obligation through offer and acceptance should

be present.

v Lawful object and lawful consideration should be present

v Competency or capacity of parties to enter into contract must be ensured.

v Free consent of the parties is necessary.

v Agreement must not be declared ‘Void’ in nature.

 “INTENTION” TO CREATE LEGAL OBLIGATION

Intention to create a valid Contract Intention not to create a valid Contract

between parties, and thereby, to create between parties, and thereby, to create
legal obligations only social obligation with no legal
E.g.: sanctity attached to it.
All Commercial legal Transactions or E.g.:
Arrangements Promises made between Friends,
Family Members, People making fake
promises without any seriousness.
 HOW TO DETERMINE “INTENTION”?

The courts cannot try to discover the intention by looking into the minds of the parties, because its not possible. It

looks at the situation in which they were placed and asks itself:

“Would reasonable people regard this agreement as intended to be legally binding?”

i.e.
LEGAL PRESUMPTION

Generally, to validate a presumption, it is necessary to check for:

ü A valid Offer
ü A valid Acceptance to the Offer
ü A valid legal Objective behind the intention to create Contract
 A battle for Presumption –
Commercial Contracts
vs.
Domestic Social Agreements
(Difference in presumption which is employed by the courts while dealing with the question of intention in cases of

contracts arising in domestic set-up as opposed to those arising in commercial set-up.)

In domestic agreements, for example those made between husbands and wives and parents and children, there is

presumption of no intention to create legal relations and no intention that the agreement should be subject to

litigation (court cases). In contrast to this, there is a rebuttable presumption in commercial agreements that the

parties intend to create legal relations

v However the problem arises when the contract is formed in such intermingled circumstances (Domestic Agreements)

that it is not clear whether the transaction is purely domestic or whether there is a possibility of treating it as a

commercial transaction, thereby, leading to establish an ‘intention to create a valid legal contract’.

v Specially, in cases of Domestic agreements, where there is usually no intention or even presumption of establishing a

legal relation, it becomes challenging for parties to establish the same. However, the presumption of intention can be

established by fulfilling three conditions:

v The Agreement between Parties must be made in WRITING

v The Agreement between Parties so made in writhing, must be REGISTERED in a court of Law.

v The Agreement between Parties must be made out of LOVE & AFFECTION. (The agreement should not be the

outcome of any Quarrel or Disagreement or Fight, but has to be made out of sheer love and affection)
 QUESTION FOR DISCUSSION

Mr. A father of Mr. B was unsure of his son qualifying C.A examination. The Son felt demoralized

with the behavior of his father and challenged him to qualify the examination in his first attempt. Mr.

A out of quarrels and anger promised to pay his Son a sum of Rs. 50,000/- if his son qualifies his C.A

examination in the first attempt through a written and registered agreement. His son managed to

qualify the exam in the first attempt, but the Father refused to pay the promised amount.

Decide whether the Son can file a suit for his rights under Contract Act?
 PROPOSAL /
OFFER

ACCEPTANCE

PROMISE

CONSIDERATION

AGREEMENT
 AGREEMENT

Legally Legally not

enforceable enforceable

CONTRACT VOID
AGREEMENT
 PROPOSAL/OFFER

v An expression of willingness to do or abstain from doing something.

v That expression of willingness to do must be to another person.
v That the expression of willingness must be made with a view to obtaining the assent of the other person.

E.g.
Ø “A” tells “B” that he desires to marry ‘B’ by the end of 2006.
Is this an offer/proposal ?
Ø “I may sell you my bike if I can get Rs.50,000/-”
Is this an offer/proposal ?
Ø I am willing to sell my motorcycle to you for Rs. 50,000/-.
Is this an offer/proposal ?
 RULES RELATING TO OFFER

v The offer may be express or implied.

v The ‘offer’ must be with intent to create a legal relationship.
BALFOUR V. BALFOUR.
v The offer must be certain and definite. It must not be vague.
v The offer must be either specific or general.
v The offer must be communicated to the person to whom it is made.
LALMAN SHUKLA V. GAURI DUTT
v The offer must be made with a view to obtaining the consent of the offeree.
v An offer can be conditional but there should be no term in the offer that
non-compliance would amount to acceptance.
v The offer must be distinguished from an invitation to offer.
 INVITATION TO OFFER

v An offer and invitation to offer are not one and the same. An offer is definite. It
is an intention towards a contract.
v An invitation to offer gives rise to an offer after due negotiation.
v Following are instances of invitation to offer to buy or sell:
Ø An invitation by a company to the public to subscribe for its shares.
Ø Display of goods for sale in shop windows.
Ø Advertising auction sales and
Ø Quotation of prices sent in reply to a query regarding price.
INVITATION TO 1ST
OFFER

OFFER 2ND

ACCEPTANCE 3RD
 HARVEY vs. FACIE
Ø In the given case, the Harvey through a telegram asked Facie two questions

namely,

a) Will you sell us Bumper Hall Pen? and

b) Telegram the lowest cash price of the same

Ø The defendants replied through telegram that the “lowest price for Bumper Hall

Pen is ₤900”. The plaintiffs sent another telegram stating “we agree to buy Bumper

Hall Pen at ₤900…” However the defendants refused to sell the property at the

price.

Ø The plaintiffs sued the defendants contending that they had made an offer to sell

the property at ₤900 and therefore they are bound by the offer.
Ø However the court did not agree with the plaintiffs, on the ground that while

plaintiffs had asked two questions, the defendant replied only to the second

question by quoting the price but did not answer the first question but

reserved their answer with regard to their willingness to sell.

Ø Thus they made no offer at all. It was finally held that the mere statement

of the lowest price at which the vendor would sell, contained no

contract to sell to the person who had enquired about the price.
 CARLILL
vs.
CARBOLIC
SMOKE BALL
COMPANY
 FACTS OF THE CASE

v The Carbolic Smoke Ball Company advertised that their Carbolic Smoke Ball was a cure for flu,

bronchitis, coughs, colds, headaches, hay-fever, whooping cough, laryngitis and sore throats

amongst others.

v The Co. was so confident of the usefulness of the carbolic smoke ball, and its ability not only to cure

but also to prevent someone from getting the ‘flu, that it advertised on the following basis:

v “Anyone who used the carbolic smoke ball in a particular way for a specified period of time, but

who still caught influenza afterwards, would be entitled to claim £100 from the company.”
v The company had gone so far as to deposit £1000 in the Alliance Bank in the event of any
such claims. The plaintiff saw the advertisement and decided to buy one of the carbolic smoke
balls. She used it exactly as advised, but still caught influenza. She took the Carbolic Smoke
Ball Company to court in order to claim her £100.
JUDGMENT
v Offers of reward by way of advertisement addressed to the public at large for the rendering of
certain services are the examples of General Offer.
v Such offer may be accepted by the performance by an individual person in order to give rise
to a contractual obligations to pay the reward.
v THE COMPANY IS LIABLE TO PAY Mrs. CARLILL THE REWARD OF £ 100 AS WELL
AS £ 1000 AS COMPENSATION.
 RULES RELATING TO A VALID
ACCEPTANCE
1. Acceptance must be given only by the person to whom the offer is made.
2. Acceptance must be absolute and unqualified
3. Acceptance must be expressed in some usual and reasonable
manner, unless the proposal prescribes the manner in which it is to be
accepted
4. Mental acceptance is ineffectual.
5. Acceptance must be given within a reasonable time
6. Acceptance must succeed the offer
7. Rejected offers can be accepted only, if renewed
 CONSIDERATION
“ No Consideration – N0 Contract ”

The expression ‘consideration’ has to be understood as a price paid for an

obligation.
Essentials of a valid consideration:
1. Consideration must move at the desire of the promisor.(it is the promisor always
who determines or sets the value of the consideration)
2. Consideration may move from the promisee or any other person.(person though
not a part of the consideration becomes part of the contract indirectly.) –
CHINAYYA Vs. RAMAYYA
3. Consideration may be something of value.(should not be physically impossible,
illegal, uncertain or illusory)
 Main Parties to the Contract

MOTHER DAUGHTER

MAMA/UNCLE

3rd Party / Outsider

CHINAYYA Vs. RAMAYYA

Exception to the rule of “Privity to Contract”
 STRANGER TO A CONTRACT CANNOT SUE

v Based on the principle of “Privity of Contract”:

“the doctrine of ‘Privity of Contract’ provides that a contract cannot
confer rights or impose obligations arising under it on any person
or agent except the parties to it.”
Which means: ‘a stranger to a contract cannot sue, only a person
who is a party to a contract can sue on it.
 CONCLUSION TO THE CASE LAW OF:
CHINAYYA V. RAMAYYA

Ø As per the Rule of Privity, “A stranger to a Contract cannot sue or file a case in case of breach, only the person

who is a party to such contract has the right to file a case or sue the guilty party, breaching the contract.”

However, there are instances, e.g. in a situation of Beneficial Contract, wherein, a contract is created for the

benefit of a third party, in case of breach, such third party or a stranger to the contract, in his capacity as the

beneficiary, can sue the guilty party and therefore can interfere in the contract. Such beneficiary is considered

as the sole subject matter for whose benefit the contract has been created.

Ø This beneficial situation is considered as the Exception to the Rule of Privity.

 CAPACITY TO CONTRACT

An essential ingredient of a valid contract is that the contracting

parties must be competent to contract, i.e.
Ø If he is a minor,
Ø If he is of unsound mind;
Ø If he is disqualified from contracting by any law to which he
is subject.
 Status of Minor’s Agreement
1. An agreement by a minor is absolutely void and inoperative as against him. Law
acts as the guardian of minors and protects their rights, because their mental faculties are
not mature - they don‘t possess the capacity to judge what is good and what is bad for
them. Accordingly, where a minor is charged with obligations and the other contracting
party seeks to enforce those obligations against minor, the agreement is deemed as void-
ab-initio.

MOHIRI BIBI v. DHARMODAS GHOSH

Dharmodas Ghosh lent the MINOR the sum of 2,000 rupees at 12% interest and secured the
loan by way of mortgage executed by the MINOR in favour of the Dharmodas Ghosh. Later
the mother of the children claim that the mortgage was void for lack of capacity. It was held
by the court that an agreement by a minor was absolutely void as against him and therefore
Dharmodas could not recover the mortgaged money nor could he have the minor’s property
sold under his mortgage.
2. Beneficial agreements are valid contracts. As observed earlier, the court protects the
rights of minors. Accordingly, any agreement which is of some benefit to the minor and
under which he is required to bear no obligation, is valid. In other words, a minor can
be a beneficiary .
3. No ratification on attaining the age of majority. Ratification means the subsequent
adoption and acceptance of an act or agreement. A minor‘s agreement being a nullity
and void, has no existence in the eye of law. It cannot be ratified by the minor on
attaining the age of majority, for, an agreement void cannot be made valid by
subsequent ratification.
4. Minor’s liability for necessaries: The case of necessaries supplied to a minor is
governed by the provision of ‘Quasi-Contract’ under the Contract Act which provides
that “if a person, incapable of entering into a contract, or any one whom he is legally
bound to support, is supplied by another person with necessaries suited to his condition
in life, the person who has furnished such supplies is entitled to be reimbursed from the
property of such incapable person.”
Note:
“What is a necessary article,” is to be determined with reference to the status and
circumstances of the particular minor. Objects of mere luxury are not necessaries, nor are
objects, which though of real use, are excessively costly. Food and clothing may be taken as
simple examples of necessaries. The necessaries would also include the infant’s lodging
expense, medical attendance, cost of defending in civil and criminal proceedings.
5. The rule of estoppel does not apply to a minor.
RULE OF ESTOPPEL
“Where one person has, by his declaration, act or omission, intentionally caused or permitted
another person to believe a thing to be true and to act upon such belief, neither he nor his
representatives shall be allowed, in any suit or proceeding between himself and such person or
his representative, to deny the truth of that thing.“ In the words of Lord Halsbury: “Estoppel
arises when you are precluded from denying the truth of anything, which you have represented
as a fact, although it is not a fact.”
vThe rule of estoppel does not apply to a minor i.e., a minor is not
estopped from pleading his infancy in order to avoid a contract,
even if he has entered into an agreement by falsely representing that
he was of full age. In other words, where an infant represents
fraudulently or otherwise that he is of full age and thereby induces
another to enter into a contract with him, then in an action founded
on the contract, the infant is not estopped from setting up infancy.
 EQUITABLE DOCTRINE OF RESTITUTION

v But if anything is traceable in the hands of minor, out of the proceeds of the
contract made by fraudulently representing that he was of full age, the court may
direct the minor to restore that thing to another party, for ‘minors can have no
privilege to cheat man’. Thus, if a minor obtain a loan by fraudulent
representation and purchases a motorcar out of that, although the loan retraction
is invalid, the court may direct the minor to restore the motorcar to the lender.
But once the identity of the property or money has been lost because it has been
spent wastefully, it is no longer possible to invoke the aid of the ‘equitable
doctrine of restitution’.
6. Minor as a partner in partnership: A minor being incompetent to contract cannot be
a partner in a partnership firm, but according to the Indian Partnership Act, he can be
admitted to the ‘benefits of partnership’ with the consent of all the partners by an
agreement executed through his lawful guardian with the other partners.
7. Minor as an agent: A minor can be an agent. He shall bind the principal by his acts
done in the course of such an agency, but he cannot be held personally liable for
negligence or breach of duty. Thus in appointing a minor as an agent, the principal
runs a great risk.

8. Position of minor’s parents: The parents of a minor are not liable for agreements
made by a minor, whether the agreement is for the purchase of necessaries or not. The
parents can be held liable only when the child is contracting as an agent for the
parents.

9. Surety/Guarantee for a minor: Where in a contract of guarantee, an adult stands

surety for a minor, the adult is liable under the contract, although the minor is not.
 PERSON OF UNSOUND MIND
WHAT IS A ‘SOUND MIND’?
The Contract Act defines the term ‘sound mind’ as follows:
“A person is said to be of sound mind for the purpose of making a contract, if, at
the time when he makes it, he is capable of understanding it and of forming a
rational judgment as to its effects upon his interests."
The Section further states that:

i. A person, who is usually of unsound mind, but occasionally,

of sound mind, may make a contract when he is of sound
mind.”
Thus a patient in a lunatic asylum, who is at intervals of sound mind,
may contract during those intervals.
ii. “A person who is usually of sound mind, but occasionally
of unsound mind, may not make a contract when he is of
unsound mind.”
Thus, a sane man, who is delirious from fever, or who is so drunk
that he cannot understand the terms of a contract, or form a
rational judgment as to its effect on his interest, cannot contract
whilst such delirium or drunkenness lasts.
 EFFECTS OF AGREEMENTS MADE BY PERSONS OF
UNSOUND MIND:

An agreement entered into by a person of unsound mind is treated on

the same footing as that of minor's, and therefore an agreement by a
person of unsound mind is absolutely void and inoperative as against
him but he can derive benefit under it. The property of a person of
unsound mind is, however, always liable for necessaries supplied to
him or to any one whom he is legally bound to support.
 DISQUALIFIED PERSONS:
The third type of incompetent persons, are those who are “disqualified from
contracting by any law to which they are subject.” Thus:
i. Alien enemies: An alien (citizen of a foreign country) living in India can
enter into contracts with citizens of India during peace time only. On the
declaration of a war between his country and India, he becomes an alien
enemy and cannot enter into contracts. “Alien friend can contract but an
alien enemy can’t contract.”
Contracts entered into before the declaration of the war stand suspended and
cannot be performed during the course of war, of course, they can be revived after
the war is over.
ii. Foreign sovereigns and ambassadors: One has to be cautious while
entering into contracts with foreign sovereigns and ambassadors, because
whereas they can sue others to enforce the contracts entered upon with them,
they cannot be sued without obtaining the prior sanction of the Central
Government. Thus they are in a privileged position and are ordinarily
considered incompetent to contract.
iii. Convict: A convict is one who is found guilty and is imprisoned. During
the period of imprisonment, a convict is incompetent (a) to enter into
contracts, and (b) to sue on contracts made before conviction.
iv. Married Women. Married Women are competent to enter into contracts
with respect to their separate properties (Stridhan) provided they are major
and are of sound mind. They cannot enter into contracts with respect to their
husbands‘ properties. A married woman can, however, act as an agent of her
husband and bind her husband's property for necessaries supplied to her. if
he fails to provide her with these.
 FREE CONSENT
‘CONSENT’ DEFINED:

The Contract Act defines the term ‘consent’ and lays down that:
“Two or more persons are said to consent when they agree upon the same
thing in the same sense.”
Thus, consent involves meeting of minds or consensus ad-idem i.e., agreeing
upon the same thing in the same sense.

If for whatever reason, there is no consensus ad-idem among the contracting

parties, there is no real consent and hence no valid contract.
 ‘FREE CONSENT’ DEFINED:

The Contract Act states that “Consent is said to be ‘free’ when it is not caused by:
v Coercion,
v Undue influence,
v Misrepresentation,
v Fraud,
v Mistake
In order to prove that his consent is ‘not free', the complainant must prove that if he
had known the truth, or had not been forced to agree, he would not have entered
into the contract.
 COERCION
“Coercion” is the:

v Committing, or threatening to commit any act forbidden by the Indian Penal

Code 1860, or
v 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.

Ø A contract brought about by coercion is voidable at the option of the party whose
consent was so caused. This means that the aggrieved party may either exercise
the option to either affirm the transaction and hold the other party liable by it or

repudiate “let it be….” the transaction by exercising a RIGHT OF

RESCISSION. “the right of not taking any action against anyone.”

Illustration:

Ø “L” threatens to shoot “M”, if he does not let out (rent) his house to him.
“M” agrees to let out his house to “L”. the consent of “M” has been induced
by coercion.

Ø “X” says to “Y” ‘I shall not return the documents relating to your wife’s
property, unless you agree to sell your house to me for Rs. 5000. ‘Y’ says,
“All right, I shall sell my house to you for Rs. 5000; do not detain my wife’s
documents of title”, X has employed coercion;
 UNDUE INFLUENCE
Ø 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 of the other.
Ø A person is deemed to be in a position to dominate the will of the other, when he
holds authority, real or apparent over the other, or when he stands in a fiduciary
relation to other.
The essential ingredients of undue influence are:
One of the parties dominates the will of the other and
v he has real or apparent authority over the other;
v he is in a position to dominate the will of the other and
v the dominating party takes advantage of the relation.
 MISREPRESENTATION
Ø “Misrepresentation’ does not involve deception but is only an assertion of
something by a person which is not true, though he believes it to be true.
Ø Misrepresentation could arise because of innocence of the person making it or
because he lacks sufficient or reasonable ground to make it. A contract which is hit
by misrepresentation can be avoided by the person who has been misled.
ü For example, “A” makes the statement on an information derived, not directly
from “C” but from “M”. “B” acts on the faith of the statement which turns out to
be false. The statement amounts to misrepresentation, because the information
received second-hand did not warrant “A” to make the positive statement to “B”.
ü “A” says to “B” with the intention to sell the land to “B”, my land produces 10
Quintals of wheat per acre. “A” believes the statement to be true, although he did
not have sufficient grounds for such belief. Later on, it came to light that the land
produces only 5 quintals of wheat per acre. This is misrepresentation.
 FRAUD

Fraud means and includes any of the following act 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.

Ø the representation that the fact is true, when it is not true, by one who does not

believe it be true;

Ø the active concealment of a fact by one, having knowledge or belief of the fact;

Ø a promise made without any intention of performing it;

Ø any other act fitted to deceive.

Examples:

v Buying goods with the intention of not paying the price is an act of fraud.

v A director of a company issues prospectus containing misstatement knowing

fully well about such mis-statement. It was held any person who had purchased

shares on the faith of such misstatement can repudiate the contract on the ground

of fraud.

v B discovered an ore mine in the Estate of ‘A’ He conceals the mine and the

information about the mine. ‘A’ in ignorance agrees to sell the estate to ‘B’ at a

price that is grossly undervalued. The contract would be voidable of the option

of ‘A’ on the ground of fraud.

 Are these also fraud??

Ø “A” sells by an auction to “B” a horse, which he knows to be unsound. “A”

says nothing to “B” about the horse’s unsoundness. Even the buyer, “B” did not

make any enquiry with respect to the health and mental stability of the horse, as

his basis of purchase was just the mere appearance of the horse. Whether “A”

has committed fraud?

Ø Buying an expired medicine from the medicine shop without enquiry and

notice, even the shopkeeper concealed the fact of expiration. Whether it is

fraud on the part of the shopkeeper ?

 CAN SILENCE BE FRAUDULENT?

Ø A mere silence as to facts which is likely to affect the willingness of a person to

enter into a contract is no fraud, until and unless where there is a duty to speak

or where his silence is equivalent to speech, then such silence amounts to fraud.

Ø “A” and “B”, being traders, enter upon a contract. “A” has private information

of a change in price of the materials which would affect “B’s” willingness to

proceed with the contract”.

 VOIDABLE CONTRACTS VOID AGREEMENTS

Definition: Definition:
Voidable Contract relate to a situation where there Agreements that are not enforceable by law are
is a lack of free consent from one of the parties. known as void contracts. Simply put, a contract that
Therefore, if the party accepts the terms of the cannot be enforced by either of the parties to the
contract, he/she will render or make the contract contract in a court of law, as the court will too, not
valid, and if they don’t, then the contract between entertain such matters.
them ceases to exist and will be treated as void.

Includes situations, that lead to a Voidable Includes situations, that lead to a Void scenario:
scenario: v Agreements made by a MINOR
v FRAUD v Agreements made by an UNSOUND PERSON
v MISREPRESENTATION v Agreements made by DISQUALIFIED PEOPLE
v COERCION v Agreement in restraint of Marriage
v UNDUE - INFLUENCE v Agreement in restraint of Trade
v Agreement in restraint of Legal Proceedings
v Uncertain Agreements
v Wagering Agreements
v Agreements contingent upon an Impossible
event
v Agreement to do an Impossible event.
RULE A: CLAIM FOR NECESSARIES SUPPLIED TO PERSONS INCAPABLE OF
CONTRACTING: (INCAPABILITY DUE TO AGE – MINOR; DUE TO
UNSOUNDNESS OF MIND; DUE TO PHYSICAL INCAPABILITY; DUE TO
FINANCIAL INCAPABILITY)

Any person supplying necessaries of life to persons who are incapable of

contracting is entitled to claim the price from the other person’s property.
Similarly, where money is paid to such persons for purchase of necessaries,
reimbursement can be claimed.

• Example:

• “A” supplies “B” a lunatic, with necessaries suitable to his condition in

life. “A” is entitled to be reimbursed from “B’s” property.

• “A” supplies the wife and children of “B”, a lunatic, with necessaries
suitable to their condition in life. “A” is entitled to be reimbursed from
“B’s” property.
RULE B: REIMBURSEMENT OF PERSON PAYING MONEY, DUE BY
ANOTHER, IN PAYMENT OF WHICH HE IS INTERESTED

A person who has paid a sum of money which another is obliged to pay, is entitled to be
reimbursed by that other person provided the payment has been made by him to protect his own
interest.

• The plaintiff should be interested in making the payment in order to protect his own
interest. Moreover, the payment must have been done in good faith.

Example: A sub-tenant pays the arrears of rent due by the tenant to the landlord, in order to save
the tenancy from forfeiture. The sub-tenant is entitled to recover from the tenant, the amount paid
by him to the landlord, although there is no contract between the two.

• The payment must be such as the other party was bound by law to pay.

• Where there is a joint liability on joint wrong doers and only one of them discharges the
liability, no suit for contribution from the other would be ‘maintainable under this
Section
 OBLIGATION OF PERSON ENJOYING BENEFIT OF NON-
RULE C:
GRATUITOUS ACT

Where a person lawfully does anything for another person, or delivers

anything to him, not intending to do so gratuitously, and such other person
enjoys the benefit thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the thing so done or delivered.

ü The thing must have been done lawfully in goods faith.

ü The thing must have been done by a person not intending to act
gratuitously, i.e., it must have been done with the intention of being paid
for.

ü The person for whom the act is done must have enjoyed the benefit of the
act.
Illustrations.

(a) A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as
his own, He is bound to pay A for them.

(b) A saves B’s property from fire. A is not entitled to compensation from B if the
circumstances show that he intended to act gratuitously.

(c) Where a coolie takes the luggage at the railway station without being asked
by the passenger or a shoe shiner starts shining shoes of the passenger without
being asked to do so, and if the passenger does not object to that, then he is
bound to pay reasonably for the same as the work was not intended to be
gratuitous.
RULE D: RESPONSIBILITY OF FINDER OF GOODS

A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a
Bailee.” Thus, an agreement is also implied by law between the owner and finder of the goods and the latter is deemed to
be a Bailee.

• Duties of finder of goods:

ü He must try to find out the real owner of the goods.

ü Must not appropriate the property to his own use. If the real owner is traced, he must restore the goods to him on
demand. If he does not take these measures, he will be guilty of criminal mis-appropriation of the property under
Indian Penal Code.

ü Further, till the goods are in possession of the finder, he 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.
RULE E: LIABILITY OF PERSON TO WHOM MONEY IS PAID,
OR THING DELIVERED BY MISTAKE OR UNDER
COERCION

A person to whom money has been paid, or anything delivered, by mistake or

under coercion, must repay or return it.
Ø A and B jointly owe Rs. 200/- to C. A alone pays the amount to C. B not
knowing the fact, pays Rs. 200/- over again to C. here C is bound to repay the
amount back to B.
Ø A pizza is delivered under a mistake to B who consumes the pizza thinking
them as birthday present. B must pay for the pizza to A, although there is no
agreement between B and the real owner A, yet he is bound to pay as the aw
regards it as quasi-contract.