INTRODUCTION & FORMATION OF CONTRACT

1. MEANING, NATURE AND SCOPE OF CONTRACT

What is Contract? What are the essentials elements of valid contract? Or
1) INTRODUCTION:
Every law is passed with certain object. The laws are passed by legislative body for the
benefit of human beings. The law of contract is a branch of law which determines the
circumstances in which promises are made by the parties to a contract, general
principles of the formation of contract and also prescribes the remedies which are
available in the Court of Law for the breach of contract against a person who fails to
perform his undertaking created under the Contract. This branch of law is the most
important branch of business of law. The object of law is bring certanity in business
transaction.
2) NATURE OF LAW OF CONTRACT:
The Indian Contract Act, 1872 deals with general principles of Law of Contract. The
provisions of this Act are applicable to the whole India except the State of Jammu &
Kashmir, because of Article 370 of Indian Constitution. The provisions of this Act came
into force from 1st day of September, 1872.
This Act deals with different stages in the formation of a contract, its essential elements,
its performance, breach of contract and the remedies for with breach of contract. This
Act is not exhaustive. It deals with the general principles of Law of Contract and with
some special contracts only. Some of the contracts like partnership, sale of goods,
negotiable instruments, insurance, etc, are not dealt by this Act. There are separate Acts
which deal with those contracts. The Law of Contract does not lay down number of
rights and duties which the law will enforce but it deals with numbers of limiting
principles, subject to which parties may create a right and duties for themselves.
MEANING OF CONTRACT/DEFINITIONS
Salmond says that Law of Contract is not the whole law of agreements, nor is it whole
law of obligation. It is the law of those agreements which create obligations, and those
obligations which have their sources in agreement.
The definition of contract is given in S. 2(h) of the Indian Contract Act, 1872 which
provides a contract is an agreement enforceable by law. Thus a contract is an agreement
made between two or more parties which the law will enforce.
Sir Fredrick Pollocksays, Every agreement and promise enforceable at law is a contract
Sir William Anson defines contract as 'a legally binding agreement between two or more
persons by which rights are acquired by one or more, to act or forbearance (abstaining
from doing something) on the part of the others..
According to Salmond, 'contract is an agreement creating and defining obligations
between the parties.
From the above definitions it could be seen that the definition of contract consists two
elements 1. An agreement and, 2. It's enforceability by law.
An agreement is defined u/s 2 (e) as every promise and every set of promises, forming
consideration for each other is an agreement. When a proposal is accepted, it becomes a
promise. Thus an agreement is an accepted proposal. Therefore, in order to form an
agreement there must be a proposal or an offer by one party and its acceptance by the
other party. In short Agreement = Proposal + Acceptance.
The second part of the definition deals with enforceability by law. An agreement is
enforceable u/s 10 if it is made by competent parties, out of their free consent and for
lawful object and consideration. Therefore, a Contract Agreement + Enforceability by
law. Thus all contracts are agreements but all agreements are not necessarily contracts.
4) MEANING OF AGREEMENT:-
"Agreement" is defined in Section 2(e) as "every promise and every set of promises
forming the consideration for each other". And a promise is defined as an accepted
proposal. Section 2(b) says: "A proposal, when accepted, becomes a promise." This is
another way of saying that an agreement is an accepted proposal. The process of
definitions comes down to this: A contract is an agreement; an agreement is a promise
and a promise is an accepted proposal. Thus every agreement, in its ultimate analysis, is
the result of a proposal from one side and its acceptance by the other.
When agreement becomes contract:-An agreement is regarded as a contract when it is
enforceable by law. In other words, an agreement that the law will enforce is a contract.
The conditions of enforceability are stated in Section 10. According to this section, an
agreement is a contract when it is made for some consideration, between parties who
are competent, with their free consent and for a lawful object.
5) SCOPE OF CONTRACT:-
As per section I of the Indian Contract Act, 1872, the provisions of this Act are
applicable to whole India including Union Territories of Jammu and Kashmir and
Ladakhw.e.f. 01/10/2019 after abolition of Art. 370 of the Indian Constitution and the
State Reorganization Act, 2019 of Jammu and Kashmir.
In this subject of contract 1 we are studying thr general principles laid down in section
75. The specific kinds of contract are dealt with Contract-ll of three particulars kinds of
contracts discussed in Ss. 124 to 238. These are- (1) Indemnity and Guarantee (Ss. 124
to 147), (ii) Bailment (Ss. 148 to 181), (iii) Agency (Ss. 182 to 238).
6) CASE LAW:-
i) Nahendra Nath Basak V. Shasabindoo Nath Basak AIR 1941 Cal.595
In this case Calcutta High Court held that, a contract involves two parties, promisor and
promisee. It can be only bi-lateral and the same party can not be a party on both sides.
No man can be under any obligation to himself.
7) CONCLUSION:-
Law of contract is the most important branch of business law that brings certainty in
business transaction. An agreement made by the competent parties, out of their free
consent and for lawful object and consideration is a contract which is enforceable by
law. In order to make a valid contract, and agreement must have above mentioned
elements in it.
2. OFFER/PROPOSAL: DEFINITION, ESSENTIAL ELEMENTS,
COMMUNICATION, REVOCATION, GENERAL/SPECIFIC OFFER,
INVITATION TO OFFER, TENDERS ANDAUCTIONS.
Qtn. Discuss the legal rules as to offer? Or
Define offer/proposal. What are its characteristics to make it valid?
Introduction
Indian Contract Act, 1872 deals with the principles of formation of a contract and its
consequences, A contract is an agreement which is enforceable by law. Therefore for the
formation of a contract, there must be an agreement between two parties. At the
inception of every agreement, there must be a definite offer by one person to another
and its unqualified acceptance by the person to whom the offer is made. An offer is a
proposal made by one party to another to enter into a legally binding agreement with
him. Thus every agreement, is the result of a proposal from one side and its acceptance
by the other Proposal, acceptance and consideration are the invisible, indispensable trio,
without which no contract is possible. A proposal is the starting point of a contract.
DEFINITION:
Definition of proposal -
S.2(a) of the Indian Contract Act, 1872, define proposal as follows-
"When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he
is said to make a proposal."
As per S. 2(c) "The person making the proposal is called the promisor", and the person
accepting the proposal is called the promisee The word 'proposor' is used in the Act in
the same sense as the word "offer" is used in English Law
Anson's Law of Contract defines proposal as "an intimation, by words or conduct, of a
willingness to enter into a legally Innding contract, and which in its terms expressly or
impliedly indicates that it is to become binding on the offeror as soon as it has been
accepted by an act, forbearance, or return promise on the part of the person to whom it
is addressed."
Chitty on Contracts defines proposal as an expression of willingness to contract, made
with an intention, actual or apparent, that it is to become binding on the person making
it as soon as it is accepted by the person to whom it is addressed."
MODES OF OFFER:-
From the above definition, it could be seen that offer may be made by express words,
spoken or written. This is known as an express offer. An offer may also be implied from
the conduct of the parties or the circumstances of the case. This is known as implied
offer. When the offer is made to a definite person, it is called an a specifie offer. It can be
accepted only by the person to whom it is made. When the offer is made to the world at
large, it is called a general offer.
The definition of proposal consists of two parts. To have made a proposal, a person must
have:
(i) signified to another his willingness to do or to abstain from doing anything; and,
(ii) has done so with a view to obtaining the assent of that other to such act or
abstinence.
The offeror therefore makes known his intention of doing or not doing something, and
he does so with a purpose of getting the offeree to assent to it.
LEGAL RULES AS TO OFFER/ESSENTIAL ELEMENTS:
The legal rules of an offer are nothing but the characteristics of an offer to make an offer
legil and valid. A proposal is a starting point of any contract and therefore, if the
proposal is not valid, Le not satisfying the legal rules, it cannot create binding
obligations between the parties.
Following are the legal rules as to an offer-
i) There must be an intention to create legal relationship.
A proposal must be capable of creating a legal relationship between the parties. Though
no specific provision is made in the Indian Contract Act as to intention of the parties for
the creation of the contract, it is settled principle of English Law that to create contract,
there must be a common intention of the parties to enter into legal obligations. It
provides that the proposal may be binding by acceptance only when it is made in
contemplation of producing legal consequences.
When the two parties enter into an agreement, their intention must be to create legal
relationship, Agreement of social or domestic nature does not create legal relationship
and as such they are not contracts..
ii) The proposal must be distinguished from mere statement of intention.
When a person declares that he has the intention to do something, it does not amount to
a proposal. The test of person's intention in making a proposal is an objective one, i.e.,
as it would be reasonably construed by a person in the position of the offeree.
iii) A proposal may be express or implied:
An offer may be made by express words, spoken or written. This is known as an express
offer, e.g. A says to B "will you purchase my house at Pune for Rs. 1 lakh?" It is an
express offer.
An offer may also be implied which can be inferred from the conduct of the parties and
from the circumstances of the case. This is known as implied offer.
iv) The proposal must be made with a view to obtain the consent of the promisee.
The definition of offer u/s 2(a) clearly provides that a proposor signifies his willingness
toproposee to do or abstain from doing anything with a view to obtain the assent of the
proposee. Hence, to constitute valid proposal mere expression of desire to do or not to
do some act is not sufficient.
v) The terms of the offer must be definite and certain and not ambiguous or vague. If the
terms of an offer are vague or indefinite, its acceptance cannot create any contractual
relationship, e.g. A says to B "I will sell you a car." A owns three different cars. The offer
is not definite.
vi) The offer may be specific or general.
When an offer is made to a definite person, it is called a specific offer. It can be accepted
only by that person to whom it is made, c.g. A gives the offer "sealed quotations are
invited from government contractors only." This offer is specific and only government
contractors are entitled to submit their quotation. When an offer is made to the world at
large, it is called the general offer. When an offer is made to world at large, any person
or persons with notice of the offer, may come forward and accept the offer.
viii) Offer is distinguished from advertisement of an auction.
An advertisement for an auction of sale does not to sell amount to an offer to hold such
auction sale because it is merely a declaration of intention. It means an offer will be
made or invited in future and not that an offer is made now. When advertisement is
given that specific goods will be sold by an auction on certain date. It does not constitute
a promise to the potential bidder that the sale will be actually held and hence, not
entitled to claim damages which he incurred in coming to the place of sale if the sale
iscancelled. Thus, mere advertisement of an auction without further qualification is an
invitation to treat and not an offer.
ix) Offer distinguished from invitation to treat:
An offer is distinguished from an invitation to an offer or to do business. Display of
goods by a shop-keeper in his window with prices marked on them, is not an offer but
merely an invitation to the public to make an offer to buy the goods at the marked
prices. Likewise, quotations, catalogues, advertisements in a newspaper for sale of
articles or circulars sent to potential customers do not constitute an offer, it is merely an
inducement to invite the public to do the business. In such case, a person, when the
prices of the goods are marked cannot force the seller to sell the goods at those prices.
x) Proposal may be conditional.
The proposor may prescribe certain conditions in the proposal. The proposor may even
prescribe the mode of acceptance. It will be a valid acceptance only when such proposal
is accepted with the conditions prescribed in the mode acceptance in the proposal.
xi) The proposal may be positive or negative.
A proposal may be to do something or not to do something. A proposal to do something
is a positive proposal, e.g. A says to B, "I will sell my house for Rs. 1 lakh." This is a
positive proposal. A proposal not to do something is a negative proposal. e.g., father
agrees to pay Rs. 100/- to son if he does not see TV during examinations.
xii) Offer must be communicated.
An offer to be complete, must be communicated to the person to whom it is made.
Unless an offer is communicated to the offeree by the offeror or by his duly authorized
agent, there can be no acceptance of it. An acceptance of an offer in ignorance of an
offer, is no acceptance and does not confer any right on the acceptor.
8) SPECIFIC OFFER, INVITATION TO OFFER, TENDERS AND AUCTIONS:-
a) Specific Offer:-
The offer may be specific or general.
When an offer is made to a definite person, it is called a specific offer. It can be accepted
only by that person to whom it is made, e.g. A gives the offer "sealed quotations are
invited from government contractors only." This offer is specific and only government
contractors are entitled to submit their quotation. When an offer is made to the world at
large, it is called the general offer. When an offer is made to world at large, any person
or persons with notice of the offer, may come forward and accept the offer.
It was held in famous English case, Carlill V. Carbolic Smoke Ball Co. (1893) 1 Q.B. 256,
that when the offer is made to public at large. it can be accepted by any member of the
public and it is not necessary that acceptance to be communicated in such case.
Fact: A company advertised in several newspapers that a reward of 100 pounds would
be given to any person who contracted influenza after using the smoke balls of the
company according to its printed directions. One Mrs. Carlill used the smoke balls
according to the directions of the company but contracted influenza.
Held, she could recover the amount from the company, as by using the smoke balls, she
had accepted the offer. L.J. Bowen When an offer is made to the entire world, it becomes
a contract when any one comes forward and performs the conditions and hence, in such
cases, communication of acceptance is not necessary.
by
b). Invitation to Offer:-
An offer must be distinguished from an invitation to offer. Many statements which seen
to be offers are, very often, merely invitation to offer. Thus, the following are not offers,
but merely invitations for an offer quotations of the usual prices of a trader, quotations
of the lowest price in answer to an enquiry, a catalogue of goods or books and
advertisement for tenders, or an advertisement of an auction. It is the purchaser who
makes the offer, and it is for the trader, book-seller or the auctioneer to accept the offer
or to reject it.
In short, every statement that seems to be an offer may not be an offer, and may not
create legal obligations. Very often, such statements are merely invitations to offer.
Thus, a book-seller's catalogue, with prices stated against the names of the books, does
not contain a number of offers, but constitutes simply an invitation to the purchases.
The purchasers are the ones who make the offers, and it is for the book-seller to accept
or to reject such offers.
c) Tenders and Auctions:-
A person who invites tenders for the purchase or sale of goods not make an offer. It is
the person who submits a tender that makes an offer, which it is for the person who
invites the tenders to accept or not.
A tender notification inviting tenders is an invitation to an offer and submission of a
tender in response to such notification is an offer. When the authority inviting tenders
accept absolutely the tender then there will be a contract and before the acceptance, a
tenderer can revoke his offer of tender
Auctions:-The above principle governs the case of Auctions Sale also. In auction sales,
the offer proceeds from the bidder, and it is for the auctioneer to accept it or not. In
auction sales, the acceptance is signified by the fall of the hammer, but the offer can be
revoked before such acceptance.
An announcement of an auction is only an invitation to offer, and a bid made at the
auction constitutes the offer. Like all other offers, it may be accepted or rejected. Thus,
there is no obligation on the auctioneer to accept any bid, even though it may be the
highest bid, unless it has been announced in advance that the goods would be sold to the
highest bidder.
9) CONCLUSION:-
Proposal or offer is starting point of a contract. The definition of proposal is given in S.
2(a) of the Indian Contract Act. It consists of two parts, where by one person have
signified his willingness to another to do or abstain from doing anything and it is done
with a view to obtaining the assent of that other to such act or abstinence. The proposal
must be valid hence above legal rules must be satisfied otherwise it cannot create any
binding obligation between the parties.

Acceptance
Introduction
An acceptance is a final and unqualified expression of assent to the terms of an offer.
S.2(b) define acceptance as assent to the proposal by the person to whom the proposal
has been made. An unqualified, unconditional acceptance of the offer creates a contract
when communicated to the offeror. When a proposal is accepted as the offer and
communicated to the offerer it becomes a promise.
2) DEFINITION OF ACCEPTANCE:-
An acceptance is the assent given to a proposal, and it has the effect of converting the
proposal into promise. S.2 (b) defines acceptance as follows -
"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."
3) CHARACTERISTICS OF ACCEPTANCE/ESSENTIAL ELEMENTS OF
ACCEPTANCE:-
a) Acceptance must be absolute S.7:
Cases: Chhoteylal Gupta v/s Union of India, 1987
Deepa Chandra v/s Mohd. SajjadAlikhan, 1951
Union of India v/s Uttamsingh Dugal, 1972.
It was held that acceptance with new conditions as the offer is neither absolute nor
unqualified, hence no valid contract comes into existence. Acceptance must be in the
same sense, in the same manner, that is provided in the proposal.
Absolute means in to, unqualified means without any conditions. S.7 of Indian Contract
Act, provides that in order to convert a proposal into a promise, the acceptance must be
absolute and unqualified.
If it is not done and new condition as the offer is added then the acceptance is neither
absolute nor unqualified.
b) Acceptance may be inferred from conduct:
Whether there has been acceptance by one party to the offer, may be collected from
words or documents that have passed between them or may be inferred from their
conduct. Label does not matter but the contents are necessary.
c) Counter offer revoke the original offer: Counter offer is the final rejection of
original offer.
Hyde v/s Wrench, 1840
The Defendant offered to sell an estate to the plaintiff for one thousand pound, which
was refused by the defendant. The plaintiff thereafter gave and offer of 950 pound and
same was rejected by defendant. Finally the plaintiff prepared to pay 1000, but
Defendant refused to sell the estate. It was held that counter offer revokes the original
offer and there existed no contract.
d) Distinction between counter offer and request for information:
Stevenson v/s Mclean, 1880
It was held that mere request for information does not destroy the offer.
J. Lush held plaintiff had not made a counter offer, but it was mere an inquiry or request
for information and hence the offer was accepted by the plaintiff and can sue to recover
the damages for breach of contract from the defendent.
e) Acceptance should be in the prescribed manner:
Acceptance has to be made in the manner prescribed or indicated by the offeror. An
acceptance given in any other manner may not be effective. If a specific, prescribed
manner has been given of acceptance in the proposal, then the acceptance must be made
in the same manner.
f)Acceptance may be retrospective:
Retrospective means dated back, when the proposal is made.
g) The acceptance must be given within the time prescribed or within
reasonable time :
Proposal can be accepted within stipulated time as specified in the proposal within or
before the expiry of that period. If no time limit is prescribed then acceptance should be
given within a reasonable time. The reasonable time depends upon the facts and
circumstances of each case.
h) Provisional acceptance of an offer can be revoked:
An acceptance is sometimes made subject to the final approval. Aprovisional acceptance
of this kind does not ordinarily bind either party until the final approval is given.
Meanwhile the offeror is at liberty to cancel his offer.
4) COMMUNICATION AND REVOCATION OF ACCEPTANCE:-
a) Communication, acceptance and revocation of proposals. S. 3:-
The communication of proposals, the acceptance of proposals, and the revocation of
proposals and acceptances, respectively, are deemed to be made by any act or omission
of the party proposing, accepting or revoking by which he intends to communicate such
proposal, acceptance or revocation, or which has the effect of communicating it.
b)Communication when complete. S. 4:-
The communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made. The communication of an acceptance is complete, as against
the proposer, when it is put in a course of transmission to him, so as to be out of the
power of the acceptor;as against the acceptor, when it comes to the knowledge of the
proposer. The communication of a revocation is complete, as against the person who
makes it, when it is put into a course of transmission to the person to whom it is made,
so as to be out of the power of the person who makes it;as against the person to whom it
is made, when it comes to his knowledge.
c)Revocation of proposals and acceptances. S. 5:-
A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance
is complete as against the acceptor, but not afterwards.
Revocation how made. S. 6:-
A proposal is revoked
(1) by the commumeation of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time
is so prescribed, by the lapse of a reasonable time, without communication of the
acceptance:
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance, or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to
the knowledge of the acceptor before acceptance.
5) OFFER DISTINGUISHED FROM LAPSE OF AN OFFER:-
Acceptance of the offer should be made before the offer lapses. An offer lapses in the
circumstances provided for in S. 6 which deals with grounds of revocation of proposal as
under:-
1. by the communication of notice of revocation by the proposer to the other party;
2. by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is
so prescribed, by the lapse of a reasonable time, without communication of the
acceptance:
3. by the failure of the acceptor to fulfill a condition precedent to acceptance, or,
4. by the death or insanity of the proposer, if the fact of his death or insanity comes to
the knowledge of the acceptor before acceptance.
The offer lapses or comes to an end because of the above mentioned grounds. When the
offer is lapsed, it does not get any binding obligation on the parties as such and there is
no valid contract.
MODES OF COMMUNICATION
Introduction
There are various modes of communication through which contract may be formed.
Because of the development of technology, it is not necessary that parties who intend to
enter into contract, need not be presence physically before each other. Followings are
some of modes of the communication.
A) CONTRACT THROUGH POST:-
The moment the letter of acceptance is posted, the promissor is bound by it, even if the
letter is dėlayed or lost in the postal transit. But in order to bind the promisor, the letter
of acceptance must be correctly appraised, and properly stamped and actually posted. If
the wrong address is furnished by the promissor himself, he will be bound by such
acceptance. So far as acceptor is concerned, he is not bound by the letter of acceptance
till it reaches the promisor.
B) CONTRACT OVER TELEPHONE OR TELEX OR ORAL
COMMUNICATION:-
Modern business is mostly done through telephone or telex. A contract by telephone or
telex has the same effect as an oral agreement entered into between the parties when
they are face to face. A contract by telephone has the same legal effect as an oral
agreement, entered into between the parties in the physical presence of each other. If
the acceptance is not in fact communicated to the promissor because the telephone
suddenly goes 'dead', there will be no contract. Thus, the contract will be complete only
when the acceptance is received by the offeror and not when it is transmitted by the
acceptor.
U/s 7 of the Arbitration and Conciliation Act, 1996, the arbitration agreement may be in
the form of an arbitration clause in a contract or in the form of separate agreement. It
shall be in writing if it is contained in-
(a) a document signed by the party;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which
provide the record of agreement; or
(c)an exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
From the above definition of the Arbitration Agreement, the contract will be complete
only when the acceptance is received by the offeror when it is transmitted or exchanged
of letters, telex, telegrams or other means of telecommunication
C ) Email and Whatsapp
Introduction:-
Under the provisions of the Information Technology Act, 2000 particularly Section 10-
A. an electrome contract is valid and enforceable.
The only essential requirement to validate an electronic contract is compliance with the
necessary pre-requisites provided under the Indian Contract Act, 1872.
Also, the courts in India give due regard to electronic contracts under the provisions of
the Indian Evidence Act, 1872.
The provisions of the Information Technology Act, 2000 (IT Act) give legal recognition
to an electronic (E-Contract) particularly section 10-A of the IT Act which states:
(ii) Validity of Contracts formed through electronic means. Section 10-A:-
Where in a contract formation, the communication of proposals, the acceptance of
proposals; the revocation of proposals and acceptances, as the case may be, are
expressed in electronic form or by means of an electronic record, such contract shall not
be deemed to be unenforceable solely on the ground that such electronic form or means
was used for that purpose."
The above provision was introduced by the Information Technology (Amendment Act),
2008 after recognizing the growing dependence on electronic means to reach
commercial agreements. This applies where contract formation, communication of the
proposal and acceptance is carried out electronically.
(iii) Modes of entering into E-Contract:-
E-Contracts can be entered into through modes of communication such as e-mail,
internet and fax. The only essential requirement to validate an E-Contract is compliance
with the necessary pre- requisites provided under the Indian Contract Act, 1872. Which
are:-
a) Offer and Unconditional Acceptance:-
Which may be made online or by e-mail communication.
b) Lawful Purpose and Consideration:
A contract is enforceable by law only when it is made for a lawful purpose and for some
consideration. It must not defeat any provision of law and must not be fraudulent in
nature.
c)Capacity of Parties and Free Consent:-
Parties to a contract are capable of entering into a contract, if they satisfy the
requirements of Section 11 and 12 of the Indian Contract Act, 1872 (capacity to
contract), and consent of the parties must be free as per Section 13 of the Indian
Contract Act, 1872.
(iv) Evidentiaryvalue of electronic records:-
The courts in India recognize electronic documents under Section 65-A of Indian
Evidence Act, 1872. The procedure for furnishing electronic documents as evidence is
provided under Section 65-B of the Indian Evidence Act, 1872.
As per Section 65-B of the Indian Evidence Act, 1872 any information contained in an
electronic record produced by a computer in printed, stored or copied form shall be
deemed to be a document and it can be admissible as evidence in any proceeding
without further proof of the original. But, admissibility of the same is subject to various
conditions prescribed under section 65-B of the said act. It is required that the
document or e-mail sought to be produced from a computer, was in regular use by a
person having lawful control over the system at the time of producing it; the document
or the e-mail was stored or received during the ordinary course of activities; the
information was fed into the system on a regular basis; the output computer was in a
proper operating condition and has not affected the accuracy of the data entered.
(v) WhatsApp:-
Those who wish to conclude contracts on WhatsApp should be careful to document the
relevant messages and reduce them to writing at some stage with signatures at the end.
Data messages are legitimate means to create legal obligations.
Technology has become an indispensable aspect of our everyday lives. Throughout
humankind's existence, we have perceived how web-based services are being utilized in
committing a crime and other wrongdoings. On the premises that WhatsApp has
become a verb, let's discuss WhatsApp Chats' suitability in a courtroom.
As a means of communication, the utilization of WhatsApp by the organization's
employee is quickly expanding. For close collaboration with partners and customers,
WhatsApp is viewed as the best reasonable informing stage for the representatives. In
the wake of seeing the expanding utilization of online media platforms like WhatsApp,
the Court started to admit texts and pictures sent on these platforms as Evidence in
criminal and civil issues.
There are some particular principles by which WhatsApp content ought to be referred to
as evidence in the Court. In Indian courts, WhatsApp chats are viewed as an electronic
record and are permissible as a conventional document.
There are some conditions which should be satisfied for the admissibility of WhatsApp
messages as Evidence:-
(1) The recipient should have received the messages. i.e. in the context of WhatsApp.
double ticks.
(2) The telephone should be in regular use. It ought not to be damaged.
(3) The sender should have the intention to send those messages.
(vi) Conclusion:-
It may be concluded that where various steps of a contract have been affected through
electronic means, the parties are at consensus-id-idem and such an agreement fulfills all
the essentials of a valid contract under the Indian Contract Act, 1872 mentioned above,
then, such contract is valid and legally enforceable.

ESSENTIAL ELEMENTS OF A VALID CONTRACT & EFFECT OF VOID,

VOIDABLE, VALID, ILLEGAL, UNLAWFULAGREEMENTS.
1) INTRODUCTION:
Every law is passed with certain object. The laws are passed by legislative body for the
benefit of human beings. The law of contract is a branch of law which determines the
circumstances in which promises are made by the parties to a contract, general
principles of the formation of contract and also prescribes the remedies which are
available in the Court of Law for the breach of contract against a person who fails to
perform his undertaking created under the Contract. This branch of law is the most
important branch of business of law. The object of law is bring certanity in business
transaction.
2) ELEMENTS OF CONTRACT:-
As per S. 10 of Indian Contract Act, 1872, an agreement is a contract which is
enforceable by law. An agreement is enforceable if it is made by competent parties, out
of their free consent and for lawful object and consideration. In order to become a
contract, an agreement must have following essential elements :-
a)Two or more parties:
There must be two or more persons to form a contract. The person who makes the
proposal is called the "proposor" and the person to whom the proposal is made is called
"proposee". Thus, there must be two parties to contract, one party making the proposal
whereas the other accepting.
b) offer and acceptance
There must be a lawful proposal and a lawful acceptance of that proposal by the other
party. When a proposal is accepted it becomes a promise. The terms of the proposal
must be certain, definite and the acceptance of that proposal also must be absolute and
unconditional. The acceptance must be according to the mode prescribed and must be
communicated to the proposor or the offeror.
c) Intention to create legal relationship :
When two parties/persons enter into an agreement, their intention must be to create
legal relationship between them. If there is no such intention on the part of the parties,
there is no contract between them. Agreement of social or domestic relation or friendly
relation does not create legal relationship and hence, is not contract.
d) Lawful object and consideration:
Proposal, acceptance and consideration are the trio of contract without which no
contract is possible. Consideration is something in return. It is something for something
of some value, which may be an interest, right, profit, benefit, etc. in any property. U/s
23 the object and consideration of contract must be lawful. The words 'object' and
'consideration in S. 23 are not used synonymously. The term 'objects is used to show the
purpose or the design. In some cases the consideration for an agreement may be legal
but the object may be unlawful. Such contracts are void.
S. 23 render certain considerations and objects as unlawful. The consideration and
object is a lawful unless :-
a) it is forbidden by law, or,
b). is of such a nature that, if permitted, it would defeat the provision of any law, or, is
fraudulent, or,
c) involves an injury to the person or property of another, or,
d). the Court regards it as immoral or opposed to public policy.
e) Capacity/competency of the parties:
S. 11 and 12 of Indian Contract Act deals with the capacity of parties. It provides that the
parties to the agreement must be capable of entering into a valid contract. A party is
competent who is major, sound mind and not disqualified by law from contracting. The
age of majority is given u/s 3 and 4 of the Indian Majority Act, which provides that those
who are having natural guardian, the age majority is 18 years whereas those having no
natural guardian, the age of majority is 21 years. The party to the contract must be of
sound mind having capacity of rational judgment.
Hence a person of unsound mind is not competent to enter into contract The parties to
the contract must not be disqualified by law from contracting. An alien enemy and an
insolvent are disqualified from contracting to protect the interest of outsiders.
f) free and genuine consent
There must be a free and genuine consent of the parties to the agreement. When both
the parties to the agreement agree upon the same thing in a same sense then it is said
that there is a meeting of mind i.e. consensus ad idem. The parties are said to be of the
same mind when they agres about the subject matter of the contract in the same sense.
As per S. 14, the consent is said to be "free" which is not obtained by eoercion, undue
influence, fraud, misrepresentation and mistake. If the consent of the parties is not free
then no valid contract comes into existence.
g) Agreement must not be void or declared void by law.
The agreement must not have been expressly declared void by any law in force in the
country. Ss. 24 to 30 and 56 of Indian Contract Act deals with these void agreements
which are as follows:
a Agreement in restraint of marriage (S. 26)
b. Agreement in restraint of trade. (S. 27)
c. Agreement in restraint of judicial proceedings (S. 28)
d Agreement void for uncertanity. (S. 29)
Agreement by way of wager. (S. 30) and,
Agreement to do an impossible act. (S. 56)
h) Certainty and possibility of performance:
The agreement must be certain and not vague or indefinite. If it is vague and it is not
possible to ascertain its meaning, then it cannot be enforced (S. 29). The terms of the
agreement must also be such as are capable of performance. An agreement to do an act
impossible in itself cannot be enforced.
i) Legal Formalities:
A contract may be made by words spoken or written. As regards the legal effects, there is
no difference between a contract in writing and a contract made by word of mouth.
However, in the interest of parties, the contract should be in writing, attested by
witnesses, signed by the parties and be registered, in order to make an agreement
enforceable.
In India, agreements relating to mortgage, sale, lease, gift of immovable property,
negotiable instrument, memorandum and article of association of company, must be in
writing. Thus where there is a statutory requirement that contract should be made in
writing, attested by witnesses and signed and registered by the parties, the required
statutory formalities must be complied with.
When the above essential requirements are satisfied by agreement, laid down u/s 10 of
Indian Contract Act, the agreement becomes a contract, which is enforceable by law.
Types of contracts
A) CLASSIFICATION ON THE BASIS OF FORMATION:-
A contract may be made in writing or by word of mouth or inferred from the conduct of
the parties or the circumstances of the case. These are the modes of formation of a
contract. Contract may be classified according to the mode of their formation as
follows:-
1).Express contract-A contract is said to be an express where it is entered into by
words, which may be spoken or written. Where the offer or the acceptance of any
contract is expressly agreed upon by words spoken or written at the time of the
formation of contract, the contract is said to be an express contract.
Illustration -A tells B on the telephone that he is prepared to sell his scooter for
Rs.10,000/- to B. accepted the offer on telephone. This is an express contract
2.)Implied contract-When a contract is inferred from the conduct of the parties, a
contract is said to be implied. An implied contract is not made in words. Such contract
comes into existence on account of act or conduct of the parties. It is not the result of
any expressed promise or promises by the parties but of their particular acts. It may also
result from a continuing course of conduct of the parties.
Illustration
1.A gets into a public bus.
2A went to a restaurant and ordered a cup of tea.
In both the cases, there is implied contract that A will pay the fair of bus or pay for the
cup of tea.
3) Quasi Contract/Constructive Contract - Quasi contracts are not contracts in
fact, but they are contracts in law. The obligations are ressembling to contract. It
required to be performed.
Quasi-Contract is based on a principle of equity that, "a persons shall not enrich himself
unjustly at the expense of another."
Illustration-A, a tradesman leaves certain goods at B's house by mistake B. treats the
goods as his own. B is bound to pay for the goods to A.
CLASSIFICATION ON THE BASIS OF EXTENT OF EXECUTION OR
PERFORMANCE OF CONTRACT:-
To the extent to which the contracts have been performed, these may be classified as -
i) Executed contracts:-Executed means the act which is done. When both the parties
to the contract have fulfilled their respective obligations, it is called as an executed
contract.
Illustration: A, agrees to sell his car to B for Rs. 2 lakhs. Accordingly, B paid the amount
and A gave possession of the car as agreed. Here both the parties have performed their
respective obligation, therefore, the contract is said to be executed.
When a seller sells an article on cash payment, it is an executed contract because both
the parties have done what they were to do under the contract stated in the contract.
ii)Executory contracts:- Executory means that which remains to be carried into
effect. A contract is said to be executory when it is not yet executed or performed. Here
both parties have yet to perform their respective obligations.
Illustration:-
(1) A, promises to paint a picture to B, promises to pay Rs. 10,000/- for it.
(2) A, agrees to engage B, as his servant from the next month, the contract is executory.
iii) Unilateral or one sided contracts:-A unilateral or one sided contract is one in
which only one party has to fulfill his obligation at the time of formation of the contract.
Because the other party has already fulfilled his obligation, even before the contract
comes into existence. Thus it is a contract by which only one party is bound to do
something as per the agreed terms.
Illustration :-
(a) A. promises to give a house as a reward to B.
(b) A, permits a railway coolie to carry his luggage and place it in a carriage. A contract
comes into existence as soon as the luggage is placed in the carriage.
iv) Bilateral contracts: - Bilateral contracts are similar to executory contracts. These
contracts are also known as contracts with executory consideration. In this contract both
the parties have to perform their respective obligation. Thus the obligations on the part
of both the parties to the contract are outstanding at the time of the formation of
contract.
Illustration:-
A, promised to settle insurance claim for B and B promised to pay Rs. 200/- to A. It is a
bilateral contract as there is an exchange of promises and obligation of both the parties
are outstanding at the time of formation of the contract.
CLASSIFICATION ON THE BASIS OF FORMS OF CONTRACT
This classification of contract is found under English Law. Accordingly, the contracts are
classified into-formal and simple contract.
1)Formal Contracts-Indian law does not recognize formal contracts. These contracts
include
contracts of record and contracts under seal because their validity depends on the form
in which they are made. Contract of record may be a judgment of a Court. It derives its
binding force from the authority of the Court. They are not contracts in fact, as they lack
the essential elements of contracts. This contract does not require consideration.
2) Simple Contracts - All contracts other than formal contracts are termed as simple
contracts. All simple contracts must be supported by consideration. Simple contract is
not a contract under seal. Simple contracts are recognized by Indian Law if supported by
consideration, subject to certain exceptions.
D) CLASSIFICATION ON THE BASIS OF ENFORCEABILITY OR VALIDITY:-
i) Valid Contract: A valid contract is that which satisfies all the conditions of
enforceability u/ s 10 of the Indian Contract Act. It is an agreement, which is binding on
the parties and enforceable by law.
ii)Void Contract: Void contract is that which is not enforceable by law. S. 2 (J) of
Indian Contract Act defines void contract as under - "A contract which ceases to be
enforceable by law becomes void when it ceases to be enforceable". In other words, a
void contract is a contract which was valid when entered into but which subsequently
became void due to impossibility of performance, change of law or some other reason.
Illustration-A, agrees to marry B. The date of marriage was fixed. A dies before the
marriage. This contract was valid at the time of its formation but became void on the
death of A.
iii) Voidable Contract: According to S. 2(i) of the Indian Contract Act, a voidable
contract is an agreement which is enforceable by law at the option of one of more of the
parties there to but not at the option of the other or others, is a voidable contract.
In simple words a voidable contract is one which can be set aside or avoided at the
option of the aggrieved party. Usually, a contract becomes voidable when the consent of
the one of the parties to the contract is obtained by coercion, undue influence or
misrepresentation of the aggrieved party, But the aggrieved party must exercise his
option by rejecting the contract within a reasonable time and also before the third party
acquires any interest.
Illustration-A threatens B of suicide thereby demanded Rs. 1000/- from B. Thereafter B
paid Rs. 1000 to A. The consent of B is not free consent because it is obtained by
coercion. This contract is voidable at the option of B.
iv) Illegal contract:-The word 'Illegal' means contrary to the law and the term
'contract' refers to an agreement which is enforceable by law. An illegal contract is
always void because it is against, or contrary to, a law enforced in the country. Thus, an
agreement or contract to commit robbery or cheating or murder, is an illegal or unlawful
contract. All illegal contracts are void but all void contracts are not necessarily illegal,
e.g. wagering contract or a contract with the minor is void but not illegal.
V Vold agreement:-As per S. 2(g) of Indian Contract Act, "An agreement not
enforceable by law is said to be void". Such agreements are void-ab-initio means void
from the beginning, eg. minor's agreements are void-ab-initio.
What is standard form of contract and what are different modes of
protection which have heen evolved by the Courts?
1) INTRODUCTION:-
The Law of Contract in recent times is facing a problem and it is assuming a new and
wide dimensions. The problem has arisen out of the modern large scale and wide-spread
practice of concluding contracts in standardized form. For example, LIC issues
thousands of insurance covers every day, Indian Railway makes innumerable contracts
of carriage in a day, etc. It would be difficult for such large scale business organizations
to draw up a separate contract with every individual. They therefore, keep printed forms
of contract. Such contracts are known as standardized contracts which contain large
number of terms and conditions in 'fine print which restrict and often exclude liability
under the contract.
In our day to day life, it is not possible for an individual to bargain with such huge
business organizations and therefore, there remain no other alternative but to accept the
offer whether he likes its terms or not. There is no freedom to an individual to alter
those terms or even to discuss them. He has no option but to take or leave the terms. In
such circumstances, he even does not take labourto discover those terms whether
profitable or not,
2) DIFFERENT MODES OF PROTECTIONS EVOLVED BY COURTS:-
a) Reasonable notice :
It is first of all a duty of a person delivering a document to give adequate notice to the
offeree of the printed terms and the conditions. Where the notice is not given, the
acceptor will not be bound by the terms. In this regard a decision of House of Lords in
Henderson V. Stevenson, 1875 is remarkable.
In this case plaintiff bought a steamer ticket, on the face of which were these words only
"Dublin to Whitehaven": on the back were printed certain conditions excluding the
liability of the company for loss, injury or delay to the passenger or his luggage. The
plaintiff had not seen the back of the ticket, nor was there any indication on the face
about the conditions on the back. The plaintiff's luggage was lost in the ship-wreck
caused by the fault of company's servant. Plaintiff was held entitled to recover his loss
from the company in spite of exemption clauses.
The House of Lords observed that the plaintiff could not be said to have accepted a term
which he has not seen, of which he knew nothing. Where a written document is
presented to a party for acceptance, reasonably sufficient notice must be given to him on
the presence of the terms and conditions
Conditions printed on the folded up ticket printed on it obliterated in part by a stamp in
a red ink, the words on ticket. "For conditions see back" were obliterated by the date
stamp, etc. were held that no proper notice of the terms had been given.
b) Notice should be contemporaneous (coexisting) with the contract.
Notice of the terms should be given before or at the time of contract. If any subsequent
notification is made in it, it will amount to the modification of the original contract and
will not bind on the party unless he has assented it.
c) Theory of fundamental breach :
This theory is a method of controlling the unreasonable consequences of wide and
sweeping exemption clauses The party imposing the conditions may not be able to rely
on them, even where adequate notice of the terms and conditions in the documents has
been given, if the party has committed a breach of contract which can be described as
fundamental., e. g. seller delivered goods different from those contracted to the buyer,
car sold without any warranty or guarantee, etc, amounts to fundamental breach.
Fundamental obligations must be performed by the party. If one party fails to perform
this fundamental obligation, he will be guilty of a breach of contract, even though
exemption clause is inserted to protect them.
d)Strict construction:
The Exemption clause in the contract must be limited to the purpose of the contract.
There may be any ambiguity or doubt as to the meaning and scope of the excluding
term. Exemption clauses are construed strictly particularly to the clause so widely
expressed as to be highly unreasonable. Any ambiguity in the mode of expressing an
exemption clause, is resolved in favour of the weaker party.
Where the words used in an exclusion clause are capable of two constructions, a wider
construction and a limited construction, then the limited construction would be
preferred, for the rule of law is that every exemption clause is to be interpreted, in the
case of ambiguity, contra- diction.
This means that if there is any doubt as to the meaning and scope for the excluding or
the limiting terms, the ambiguity will be resolved against the party who has inserted it
e) Liability in Tort:
Even where an exemption clause is exhaustive enough to exclude all kinds of liability
It is however, open to the parties to exclude liability even for negligence by express
words or necessary implication.
Now it is expressly provided under English Law by "The (English) Unfair Contract
Terms Act, 1977, that any clause in a contract which excludes or restrict liability för
death or personal injury resulting from the negligence shall be absolutely void.
f) Unreasonable terms -
The Court started giving protection by excluding unreasonable terms from the contract.
A term is unreasonable if it defeats the very purpose of contract or oppose to public
policy.
g) Exemption Clauses and Third Parties:
It is one of the basic principles of law of contract that only parties to the contract can
enforce the contract. Therefore, no third party either can enjoy any rights or suffers any
liability under it. This principle is known as "privity of contract". This principle also
applies to standard form of contracts. Therefore, when the goods are supplied or
services are rendered under a contract which exempts the supplier from liability and a
third party is injured by the use of them, the supplier is liable to him even though he has
purchased his exemption from the other party to the contract.

Module no 2
Compentency of parties section 10 to 12 ICA 1872
"Minor's agreements are void," Explain.
Explain principle in MohariBibi v/s Dharamdas Ghosh, 1963 Cal. Privy
Council.
2. MINOR'S AGREEMENT
S.11 Who are competent to contract:
1) a person is a major, when he has attamed the age of majority,
2) who is of sound mind.
3) who is not disqualified from contracting by law.
The age of majority has reference to S.3, 4 of Indian Majority Act, which provides in case
of person having natural guardian the age of majority is 18 years.
Whereas the person having no natural guardian, the age of majority is 21 years. It means
those who are not major are not competent to contract. Therefore, minor's agreements
are not enforceable by law. Minor's agreement is void-ab-initip, this was held in famous
case, MohariBibee v Dharmodas Ghose.
3.Effect of minors agreement
In India Minor's agreement is void-ab-initio and is not in existence at all, whereas in
England minor's agreement is voidable
a) In India, there is no ratification (confirmation) to minor's agreement :
a Ratification means confirmation. A male boy of 17 years made a contract with one is
void even after he attained the age of majority after one year. The previous contract is
void, as it is not existing in eyes of law.
b)No estoppel against minor:
Estoppel means a person is not allowed to speak contrary what he had said earlier.
Suppose a minor by misrepresenting his age induces another to contract with him then
there is no such estoppel against the minor. The reason is that there can be no estoppel
against statute. The policy of law of contract is to protect person below age from
contractual liability and naturally, the doctrine of estoppel cannot be used to defeat that
policy.
c) No liability in contract / in tort arising out of contract:
A minor in law is incapable of giving consent. There being no consent, there could be no
change in the character or status of the parties. A minor hence cannot be held
responsible anything, which would be an indirect way of enforcing his agreement.
d)Doctrine of restitution:
If a minor obtains property or goods by misrepresenting his age, he can be compelled to
restore it (to return), but only so long as the same is traceable in his possession. Where
the minor has sold the goods or converted them, he cannot be made to repay the value
of the goods, because that would amount to enforcing a void contract.
e)No specific performance:
An agreement by minor being void, the Court will never direct the specific performance
of such agreement by him.
f) No insolvency for a minor :
A minor cannot be declared insolvent, although there are dues payable from the
properties from the minor.
g)Minor and partnership:
A minor cannot be admitted as partner in Partnership firm but can be a beneficiary in
partnership. His liability is limited to the extend of his share and not joint and several
liabilities as other major partner, S.30. But if he elects to continue in partnership after
attaining majority, his liability is joint & several, retrospective. i.e. date back to his day
of admission in partnership when he was minor.
h) A minor can be an agent:
A minor can become agent but a minor cannot be a principal. A minor can draw, make,
endorse, and deliver negotiable instrument to bind all parties except himself.
f) Liability for necessaries, S.68:
S.68 of Indian Contract Act, provides for the liability for necessaries supplied to person
incompetent to contract. If a person incapable of entering into a contract, or any one
whom he is legally bound to support, is supplied to his condition in life, the person who
has furnished such supplies is entitled to be reimbursed from the property of such
incapable person.
MohariBibi v/s Dharamdas Ghosh, 1963 Cal. Privy Council.
S. 68 Claim for necessaries supplied to person incapable of contracting, or on his
account If a person, incapable of entering into a contract or any one whom he is legally
bound to support, is supplied by another person with necessaries suited to his
conditions in life, the person
The respondent Dharamdas Ghosh (Original Plaintiff), executed a mortgage on 20-7-
1895 in favour of Appellant, i. e BrahmoDutt, a money lender carrying on business at
Calcutta and elsewhere. The respondent mortgaged his house with appellant to secure
the repayment of Rs. 20,000/- at the interest of 12%. Out of Rs. 20,000/-Rs. 10,500/-
have been paid to respondent as a part of consideration for the mortgage.
Brahmo Dutt was absent from Calcutta throughout the transaction and his whole
business was carried through for him by his attorney KedarnathMitter, and his local
manager Mr. Dedraj, through whom the amount of Rs. 10,500/- for BrahmoDutt was
given to DhurmodasGhose.
Before the execution of mortgage deed and before considering the proposed advance,
Kedarnath received information through a notice/ letter written and sent to him on 15-
7-1895 i.e. five days before mortgage deed is executed, byBhupendranath Bose, an
attorney informing and instructing Kedarnath that the mother and the guardian
appointed by the High Court for the personal property of BabuDharamdas Ghosh is still
an infant under the age of 21 and hence not to lend any money to him
Kedarnath denied the receipt of any such letter cum notice but evidence on record
shows that Kedarnath did personally received it on 15-7-1895.
Kedarnath on the day on which mortgage was executed i. e. on 20-7-1895 got the infant
i.e. Dharamdas Ghosh to sign a long declaration prepared by Kedarnath containing a
statement that the Dharamdas was major on 17th June, 1895 The manager of the Brumo
Dutta Mr. Dedraj relying on this declaration and undertaking that Dharamdas Ghosh
had attained the age of majority, had agreed to advance to him Rs. 20,000/- Out of
which Rs. 10,500/- was paid as a part of consideration for the mortgage. Mohori Bibee,
the present appellant, is executor of Brahmo Dutt after his death,
The infant, D. Ghosh on 10-9-1895 by his mother and guardian as next friend, filed a
suit in a Court against BrahmoDutt for a declaration that mortgage deed executed was
void and inoperative and it should be delivered up and cancelled.
The Trial Court and High Court has allowed the suit, declared the mortgage deed null
and void and held that minor's agreements are void-ab-initio. Against those orders, this
is an appeal filed by this appellant.
Issue: What is the nature of Minor's agreement?
Held: S.10 required that the parties to a contract must be competent and S.11 declares
that a minor is not competent. Therefore minor's agreement is void-ab-initio i.e. from
the very beginning and cannot be enforced at law. The suit is therefore dismissed.
ii) In HariMohan v/s Dulu Miya, 1934 Calcutta H.C.held that minor is not liable in tort
for money lent on a bond.
SOUNDNESS OF MIND FOR THE PURPOSE OF MAKING CONTRACTS,
EFFECT OF UNSOUNDNESS OF MIND ON THE CONTRACT.
An agreement enforceable by law is a contract. All agreements are contract if they are
made by the free consent of parties competent to contract, for a lawful consideration
and with a lawful object, and are not expressly declared to be void.
2. WHO ARE COMPETENT TO CONTRACT
Every person is competent to contract who is 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 according to S. 11 of Indian Contract Act, 1872
following persons are competent to contract. -
a) A person who has attained the age of majority,
b) A person who is of sound mind and
c) A person who is not disqualified by any law from contracting.
3. WHAT IS A SOUND MIND FOR THE PURPOSE OF CONTRACTING-: S.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 sound mind. A person
who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.
Persons of unsound mind are classified under two heads -:
Idiot-who cannot be cured forever and who suffers from intermittent attack of
unsoundness. so the contract made by them are void.
Lunatics-There are two intervals. 1) sound mind 2) unsoundmind.
When he is of sound mind and made a contract, it is valid, whereas when he is of
unsound (lunacy) the contract made is void.
Le. A patient in a lunatic asylum, who is at intervals of sound mind, may contract during
those intervals.
In England, a contract entered by a person of unsound mind is voidable at his option.
Thus in England a person of unsound mind is competent to contract, but he may avoid
his contract if he satisfied a Court that he was incapable of understanding the contract
and the other party knew it. It becomes binding on him only if he affirms it.
In India, on the other hand the agreement of a person of unsound mind is absolutely
void.i.e. void-ab-intio like minor's agreement. S. 12 gives the test of competency, which
defines the person of sound mind. He is the person who is in a position of rational
judgement as to effect of his act, on his own interest. Practically. It means such person
understands the facts from right perceptive, judge his own interest, safeguard his own
interest.
3. LEGAL DISQUALIFICATION-EXAMPLES: SECTION 75 OF THE PATENTS
ACT, 1970, SECTION 75 OF THE INDIAN FORESTS ACT, 1927, SECTION 130
OF THE TRANSFER OF PROPERTY ACT, 1882.
1) INTRODUCTION:-
Every person is competent to contraet who is 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 according to S. 11 of Indian Contract Act, 1872
following persons are competent to contract. -
a) A person who has attained the age of majority,
b) A person who is of sound mind and
c) A person who is not disqualified by any law from contracting.
2).LEGAL DISQUALIFICATION:-
a)Section 75 of the Patents Act, 1970:-
Restriction on employees of patent office as to right or interest in patents.
S.75:-
All officers and employees of the e patent office shall be incapable, during the period for
which they hold their appointments, to acquire or take, directly or indirectly, except by
inheritance or bequest. any right or interest in any patent issued by that office.
b)Section 75 of the Indian Forests Act, 1927.
Forest Officers not to trade. S.75:-
Except with the permission in writing of the State Government, no Forest Officer shall,
as principal or agent, trade in timber or other forest-produce, or be or become interested
in any lease of any forest or in any contract for working any forest, whether in or outside
the territories to which this Act extends.
c)Section 136 of the Transfer Of Property Act, 1882:-
Incapacity of officers connected with courts of justice, s.136
No judge, legal practitioner, or officer connected with any Court of Justice can buy or
traffic in, or stipulate for or agree to receive any share of or interest in any actionable
claim, and no Court of Justice can enforce, at his instance, or at the instance of any
person claiming by or through him, any actionable claim so dealt with by him as
aforesaid.
Thus, the judges, legal practitioners and Court officers are debarred from buying or
trafficking in, actionable claim, and no such claim can be enforced in court of law at his
instant.
4. COMPETENCY OF PRISONERS IN JAIL, MARRIED WOMEN, ALIENS,
INSOLVENTS.
A)COMPETENCY OF PRISONERS IN JAIL
Convict: Under the Forfeiture Act, 1870 a convict whose sentence was in force and not
expired could not sue for an injury to his property or for recovery of debt. This disability
was removed by Criminal Justice Act 1948.
At common law a convict may sue for any personal wrong such as assault, battery, or
slander defamation.
In India, a convict may himself sue for tort for both his person and property. The
forfeiture of property of the offender has been abolished except u/s. 126, 127 and 169 of
L.P.C.
B)COMPETENCY OF MARRIED WOMEN
Married woman: - At common law married woman could not sue unless her husband
was joined with her as a plaintiff. They are two bodies in one soul.
Under Married Woman Property Act, 1882, she could sue in tort in all respect as if she
was unmarried. The Law Reform (Married Woman and Tort feasors) Act, 1935 also
provides that married woman could sue in tort as if she is unmarried.
Action between husband and wife. A wife cannot sue her husband for a tort nor
can a husband sue his wife. But wife may sue her husband for protection and security of
her own separate property. Except this no wife or husband can sue the other in tort.
Thus she cannot sue him for personal wrongs such as assault, libel or injury hy
negligence. This is based on the principle that husband and wife formed one person in
eye of law.
There is nothing in the Contract Act which prevents a married women from making a
contract Both under the Hindu and Mohammedan Law, a married woman is entitled to
make a contract, so as to bind her property.
C) COMPETENCY OFALIEN ENEMIES CONTRACT BY ALIEN ENEMIES:
Alien means a foreigner, an alien enemy is a country against which the war is declared
with the Union of India, the citizen of that country becomes an alien enemy and
contracts with him during the war, are void and not enforceable by law. During war
alien enemy cannot enter into a contract with an Indian citizen. He is also disqualified
from suing in an Indian Court, unless permitted by Central Govt.
D) COMPETENCY OF INSOLVENTS CONTRACT BY INSOLVENT:
There is no prohibition against a contract by an insolvent after the insolvency
proceeding have commenced but before adjudication. There is no statutory prohibition
against the sale of property by an insolvent after insolvency proceeding have been
initiated.
Insolvent is a person whose liabilities are more than the assets. When a person is
declared an insolvent by a competent Court, his property vest in Receiver or Official
Assignee, and the insolvent is deprived of his power to deal with the property, hence he
cannot enter into contract relating to his property. However, this disqualification of an
insolvent is removed where the Court passes an order of discharge.
Module no 3. FREE CONSET
SECTIONS 13 TO 22, 64, 65, 67 OF ICA, 1872
1. CONSENT AND FREE CONSENT.
A contract is an agreement enforceable by law. An agreement is enforceable when it is
made by competent parties, out of their free consent and for lawful object and
consideration. A consent is said to be free when it is not obtained by coercion, undue
influence, fraud, misrepresentation and mistake. Coercion is also called as duress.
DEFINITION OF CONSENT
S.13 of Indian Contract Act, 1872 defines consent. It provides "two or more persons are
said to consent when they agree upon the same thing in the same sense".
The consent is Consensus-ad-idemmeans the meeting of mind. This section defines
consent. "Parties are said to consent when they not only agree upon the same thing, but
also agree upon that thing in the same sense."
DEFINITION OF FREE CONSENT S.14
Consent is said to be free when it is not caused by-
i) coercion, as defined in s. 15; or
ii) undue influence, as defined in s, 16; or
fraud, as defined in s. 17, or
iv) misrepresentation, as defined in s. 18; or
v) mistake, subject to the provision of the s.20,21, and 22
Consent is said to be caused when it would not have been given but for the existence of
such as coercion, undue influence, fraud, misrepresentation or mistake.
2. COERCION AND ITS EFFECT ON THE CONTRACT: SECTIONS 15 AND 19
OF INDIAN CONTRACT ACT, 1872
Qtn. Define coercion. State the effect of coercion on the validity of a
contract, how coercion differs from undue influence?
1) DEFINITION OF COERCION S.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 porson whatever, with the intention of causing any person to enter
into an agreement.
Explanation - It is immaterial whether the Indian Penal Code. 1860 is or is not in force
in the place where the coercion is employed.
Ingredients: The analysis of the provisions in section 15 provides for the following
elements as
a) commission or threat of commission of an act forbidden by the Indian Penal Code,
1860,
b) unlawful detention or threat of detention of any property.
c) at the cost of that party's prejudice.
d)with an intention to make him, enter into an agreement.
The Explanation to section 15 provides as -
a) coercion is said to be applied,
b) even though there is no application of the Indian Penal Code, in any case.
Illustration
A, on board an English ship on the high seas, causes B to enter into an agreement by an
act amounting to criminal intimidation under the Indian Penal Code, 1860.
A afterwards sues B for breach of contract in Calcutta.
A has employed coercion, although his act is not an offence by the law of England, and
although s 506 of the Indian Penal Code, 1860 was not in force at that time when or
place where the act was done
3)VOIDABILITY OF AGREEMENTS WITHOUT FREE CONSENT. S.19:-
When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused
a party to a contract, whose consent was caused by fraud or misrepresentation, may, if
he thinks fit, insist that the contract shall be performed, and that he shall be put in the
position in which he would have been if the representations made had been true.
Exception. If such consent was caused by misrepresentation or by silence, fraudulent
within the meaning of section 17, the contract, nevertheless, is not voidable, if the party
whose consent was so caused had the means of discovering the truth with ordinary
diligence,
Explanation.a fraud or misrepresentation which did not cause the consent to a
contract of the party on whom such fraud was practised, or to whom such
misrepresentation was made, does not render a contract voidable.
Illustrations:-
(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are
made annually at As factory, and thereby induces B to buy the factory. The contract is
voidable at the option of B.
(b) A, by a misrepresentation, leads B erroneously to believe that five hundred maunds
of indigo are made annually at As factory. B examines the accounts of the factory, which
show that only four hundred maunds of indigo have been made. After this B buys the
factory. The contract is not voidable on account of As misrepresentation.
(c) A fraudulently informs B that As estate is free from incumbrance. B thereupon buys
the estate. The estate is subject to a mortgage. B may either avoid the contract, or may
insist on its being carried out and the mortgage-debt redeemed.
(d) B. having discovered a vein of ore on the estate of A, adopts means to conceal, and
does conceal the existence of the ore from A. Through As ignorance B is enabled to buy
the estate at an under-value. The contract is voidable at the option of A.
(e) A is entitled to succeed to an estate at the death of B. B dies; C having received
intelligence of Bs death, prevents the intelligence reaching A, and thus induces A to sell
him his interest in the estate. The sale is voidable at the option of A.
UNDUE INFLUENCE AND ITS EFFECT ON THE CONTRACT,
PARDANASHIN WOMEN UNCONSCIONABLE BARGAINS: SECTIONS 16
AND 19A OF INDIAN CONTRACTАСТ, 1872. -
Qtn. Enumerate the ingredients of a free consent & discuss the various
ingredients of 'Undue Influence with suitable illustrations?
Definition
1.A contract is said to be induced by 'undue influence where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will
of the other and uses that position to obtain an unfair advantage over the other.
2.In particular and without prejudice to the generality of the foregoing principle, a
person is deemed to be in a position to dominate the will of another -
a) where he holds a real or apparent authority over the other, or where he stand in a
fiduciary relation to the other; or
b) where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by the reason of age, illness, or mental or bodily distress.
3.Where a person who is in a position to dominate the will of another, enters into a
contract with him, and the transaction appears, on the face of it or on the evidence
adduced, to be unconscionable, the burden of proving that such contract was not
induced by undue influence shall be upon the person in a position to dominate the will
of the other.
Nothing in the sub-section shall affect the provisions ofs 111 of the Indian Evidence Act,
1872.
3) INGREDIENTS OF UNDUE INFLUENCE:-
S.16 (1) provides for following elements -
a)There is a contract,
b)The contract is said to be induced by the relations between parties to the contract,
c) One of the party to the contract is capable of dominating the will of other,
d)Such party uses its position to obtain an unfair advantage over the other party.
S. 16 (2) provides for following elements -
a)A person is deemed to dominate the will of other,
b) Such person hold real or apparent authority,
c) Such person stands in a fiduciary relations with other
d) A person whose will is dominated is temporarily or permanently became mentally
handicapped due to old age, illness or mental or bodily distress, not capable of
performing the contract.
S. 16 (3) provides for following elements -
a)Person dominating the will of other, enters into contract with him
b) Such contract appears to be unconscionable on the face of it
c) The party dominating the will needs to prove that contract is not affected by undue
influence.
Exception -S. 111 of Indian Evidence Act is an exception to S. 16(3)
The Indian Evidence Act S.111 Proof of good faith in transaction where one party is in
relation of active confidence. Where there is a question as to the good faith of a
transaction between parties, one of whom stands to the other in a position of active
confidence, the burden of proving the good faith of the transaction is on the party who is
in a position of active confidence.
4)PRESUMPTION OF UNDUE INFLUENCE
The effect of the pronumption is that once it is shown that the defendant was in a
peutam donnaite the will of the plaintiff it will be presumed that he must have used his
position too mullur advantage
1)Pardarmshoen woman,
2) Catching bargain (unconscionable bargain)
Pardanasheen woman is one who is observing parda, barkha or veil. Practically, who
obserne seclusion Iseparation) front society not mixing in society with stranger except
family members. She is given special protection by law as she is not aware of business
and can likely be deceive by anyone. So any transaction with pardanasheen woman if
she challenged its validity it is presumel that undue influence was there. Burden of proof
is on the other party to prove, how there was no undue influence.
Catching Bargain or unconscionable bargain:
Where one of the parties to a contract is in a position to dominate the will of the other
and the contract is apparently unconscionable that consent must have been obtained by
undue influence. The bargain is moonscience. Generally the price of consideration is too
low or negligible or it is so unireasonable, that so person can sale or convey Bargain or
price shall be fixed by the parties, Court shall not sit over a bargain. It is for the party to
decide the price or consideration. It is against.conscience. In such cases undue influence
is presumed. Burden of proof is on defendant.
5)POWER TO SET ASIDE CONTRACT INDUCED BY UNDUE INFLUENCE.
S. 19-A:- (Amendment 1899).
When consent to an agreement is caused by undue influence, the agreement is a
contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to
avoid it has received any benefit thereunder, upon such terms and conditions as to the
Court may seem just.
Illustrations:-
(a) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's
son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the
Court may set the bond aside.
(b) A, à money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence,
induces B to execute a bond for Rs. 200 with interest at 6 per cent. per month. The
Court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may
seem just.
4. MISREPRESENTATION AND ITS EFFECT ON THE CONTRACT:
SECTIONS 18 AND 19 OF INDIAN CONTRACT ACT, 1872
Qtn. What is free consent? Distinguish between fraud and
misrepresentation explain when silence amounts to fraud.
INTRODUCTION:-
An agreement is enforceable by law when it is made by competent parties, out of their
free consent and for lawful object and consideration. A consent is said to be free when it
is not caused by coervion, undue influence, fraud, misrepresentation and mistake.
Misrepresentation makes a contract voidable at the option of party against whom
misrepresentation was caused. In misrepresentation there is no intention to deceive.
Misrepresentation means mis-statement of fact material to contract
2) DEFINITION OF MISREPRESENTATION:-
Misrepresentation means and includes:
a)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;
b) any breach of duty which, without an intent to deceive, gains an advantage to the
person committing it, or any one claiming under him by misleading another to his
prejudice or to the prejudice of any on claiming under him;
C) causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing which is the subject of the agreement.
3) INGREDIENTS:-
a) The party or his agent to the contract makes any statement believing it to be true,
which is actually not true; or
b) There is an unintentional breach of duty without any intention of deceiving or gaining
any unfair advantage: or
c) There is some mistake caused as to subject matter of agreement without any intention
to deceive.
Misrepresentation fraud - intention to deceive.
Misrepresentation is generally -
1) Unwarranted statement: When a person positively asserts that a fact is true when
his information does not warrant, it to be so, he believes it to be true, this is
misrepresentation. These are the statement which are made in pampas manner. In one
case where the seller of the car stated that the car had done only 20,000 miles, the
representation being untrue, the buyer was allowed to recover compensation for
misrepresentation.
2) Breach of duty: Any breach of duty which brings an advantage to the person
committing it by misleading the other to his prejudice is a misrepresentation. In such
cases there is no intention to deceive, but the circumstances are such as to make the
party who derives a benefit from the transaction equally answerable.
In one case a husband undergoing vasectomy operation was not warned that there was a
slight risk of his wife becoming pregnant, the surgeon was held responsible to the man
and his wife of unwarranted pregnancy and the plaintiff were awarded damages for
distress, pain and suffering.
4)Effects of misrepresentation-
When consent to agreement is caused by misrepresentation then the agreement is
voidable at the option of the party whose consent was so caused. As per s 19 such
contracts are voidable and can be reached by the court.

FRAUD AND ITS EFFECT ON THE CONTRACT: SECTIONS 17 AND 19 OF

INDIAN CONTRACT АСТ, 1872.
O. Define free consent. When is the consent said to be caused by fraud?
Define and distinguish between 'Fraud' & 'misrepresentation'.
1) INTRODUCTION:-
An agreement is enforceable by law when it is made by competent parties, out of their
free consent and for lawful object and consideration. A consent is said to be free when it
is not caused by coercion, undue influence, fraud, misrepresentation and mistake. Fraud
makes a contract voidable at the option of party against whom fraud is committed.
Intentional misrepresentation of facts is called fraud.
2)DEFINITION OF FRAUD:-
"Fraud means and includes any of the following acts committed by a party to a contract,
or with his connivance, or by his agent, with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract:
1) the suggestion, as to a fact, of that which is not true by one who does not believe it to
be true;
2) the active concealment of a fact by one having knowledge or belief of the fact;
3)a promise made without any intention of performing it;
4) any other act fitted to deceive;
5)any such act or omission as the law specially declares to be fraudulent.
Explanation - Mere silence as to facts likely to affect the willingness of a person to
enter into a contract is not fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person keeping silence to speak, or unless
his silence is, in itself, equivalent to speech.
4) INGREDIENTS:-
a) There is a contract entered into by the parties.
b) The intention of the one of the party is to deceive the other party or his agent. Fraud
is proved when it is shown that the false representation has been made -
a)knowingly, or
b)without belief in its truth, or
c) recklessly, carelessly whether it be true or false.
5) WHEN SILENCE AMOUNTS TO FRAUD:-
The explanation to S. 17 of Indian Contract Act provides for that silence as to fact is not
per se fraud. Mere silence is not fraud unless there is a duty to speak, or unless it is
equivalent to speech. Intentional misrepresentation to deceive is the essence of fraud. A
person making a false representation is not guilty of fraud if he honestly believes in its
truth.
An active concealment of material fact is a fraud. Mere silence does not amount to fraud
except few cases.
Ordinarily, mere silence is no fraud even if it result to conceal facts likely to affect the
willingness of a person to enter into a contract. A contracting party is under no
obligation to disclose the whole truth to the other party or to give him the whole
information in his possession affecting the subject matter of the contract. Therefore
generally trader may keep silence about the change in prices. A seller who wishes to sale
a horse of unsoundmind but says nothing about its quality, commits no fraud.
When silence is a fraud:
a.Duty to speak: Silence is fraud when the person keeping silence is under duty to
speak. Duty to speak arises when one contracting party reposes trust and confidence in
other. The duty to disclose truth will arise in all cases where one party reposes, and the
other accepts confidence, and also when one party cannot discover the truth without any
means and has to depend upon the good sense of the other party i.e. contract of
insurance.
b.When silence is deceptive: Silence sometimes itself equivalent to speak. A person
who keeps silence knowing that his silence is going to be deceptive, is guilty of fraud.
c. Change of circumstances: Sometimes a representation is true when made, but it
may on account of a change of circumstances becomes false when it is actually acted
upon by the other party. In such cases it is the duty of the person who made the
representation to communicate the change of circumstances.
d. Half truth: Even when a person is under no duty to disclose a fact, if he voluntarily
discloses something and then he stops half the way, he may become guilty of fraud by
non-disclosure. A person may keep silence, but if he speaks, a duty arises to disclose the
whole truth.
6) VOIDABILITY OF AGREEMENTS WITHOUT FREE CONSENT. S. 19.:-.
When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if
he thinks fit, insist that the contract shall be performed, and that he shall be put in the
position in which he would have been if the representations made had been true.
Exception. If such consent was caused by misrepresentation or by silence, fraudulent
within the meaning of section 17, the contract, nevertheless, is not voidable, if the party
whose consent was so caused had the means of discovering the truth with ordinary
diligence.
Explanation. A fraud or misrepresentation which did not cause the consent to a
contract of the party on whom such fraud was practised, or to whom such
misrepresentation was made, does not render a contract voidable.
lustrations:-
(a) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys
the estate. The estate is subject to a mortgage. B may either avoid the contract, or may
insist on its being carried out and the mortgage debt redeemed.
(b) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and
does conceal the existence of the ore from A. Through A's ignorance B is enabled to buy
the estate at an under-value. The contract is voidable at the option of A.
(c) A is entitled to succeed to an estate at the death of B. B dies; C having received
intelligence of Bs death, prevents the intelligence reaching A, and thus induces A to sell
him his interest in the estate. The sale is voidable at the option of A.

MISTAKE, MUTUALAND COMMON MISTAKE, UNILATERAL MISTAKE,

MISTAKE OF LAW AND FACT, ITS EFFECT ON THE CONTRACT:
SECTIONS 20-220 OF ICA, SECTION 26 OF SRA, 1963.
2)MEANING OF MISTAKE:-
Agreement void where both parties are under mistake as to matter of fact S.20 "Where
both the parties to an agreement are under a mistake as to a matter of fact essential to
the agreement, the agreement is void."
Explanation
An erroneous opinion as to the value of the thing which forms the subject matter of the
agreement, is not to be deemed a mistake as to a matter of fact.
Thus there is no agreement in the eyes of law. Mistake of fact are of two types -
i) bilateral - when both the parties to the agreement under a mistake as to matter of fact.
ii) unilateral - when mistake of fact committed by one party.
Mistakes are also classified as -
Mistake of fact -"ignoratiafactaexecusta" - means ignorance of fact is excused, defence
Mistake of law - "ignoratiajuris non excusta" means ignorance of law is no excused.
Everybody must know the law of land.
3) ILLUSTRATION:-
a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England
to Bombay. It turns out that, before the day of bargain, the ship conveying the cargo had
been cast away, and the goods lost. Neither party was aware of these facts. The
agreement is void.
b)A agrees to buy from B a certain horse. It turns out that the horse was dead at the time
of bargain. Neither party was aware of the fact, the agreement is void.
4)INGREDIENTS:-
Mistake comes into operation u/s 20
a)when both the parties to an agreement are mistaken,
b)their mistake is as to matter of fact, and
c)the fact about which they are mistaken is essential to the agreement.
Certain facts which are essential to every agreement are -
a)the identity of parties,
b)the identity and the nature of subject matter of contract,
c)the nature and content of the promise itself.
5)EFFECT OF 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. If the consent of the party is obtained
by mistake then such agreement is void-ab-intio. Both the parties to an agreement are
mistaken as to facts which are essential to the main purpose of contract. The facts which
are essentials to the main purpose of contract are identity of party, subject matter its
nature and content of promise itself.
6) PROVISION OF SECTION 20 TO 22 OF INDIAN CONTRACTACT:-
a)Agreement void where both parties are under mistake as to matter of fact.
S. 20:- Where both the parties to an agreement are under a mistake as to a matter of
fact essential to the agreement, the agreement is void.
Explanation. An erroneous opinion as to the value of the thing which forms the subject-
matter of the agreement is not to be deemed a mistake as to a matter of fact.
Illustrations:-
(a)A agrees to sell to B a specific cargo of goods supposed to be on its way from England
to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo
has been cast away and the goods lost. Neither party was aware of the facts. The
agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the
time of the bargain, though neither party was aware of the fact. The agreement is void.
(c)A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the
time of the agreement, but both parties were ignorant of the fact. The agreement is void.
b)Effect of mistakes as to law. S.21:-
A contract is not voidable because it was caused by a mistake as to any law in force in
India; but a mistake as to a law not in force in India has the same effect as a mistake of
fact.
Illustration:-
A and B make a contract grounded on the erroneous belief that a particular debt is
barred by the Indian Law of Limitation; the contract is not voidable.
c)Contract caused by mistake of one party as to matter of fact. S.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.
7)RECTIFICATION OF INSTRUMENTS UNDER SPECIFIC RELIEFACT
When instrument may be rectified. S.26:-
(1) When, through fraud or a mutual mistake of the parties, a contract or other
mstrumen writing not being the articles of association of a company to which the
Companies Act, 1956 apphes does not express their real intention, then
(a) either party or his representative in interest may institute a suit to have the
instrumeni rectified; or
(b) the plaintiff may, in any suit in which any right arising under the instrument is in
issue, claim in his pleading that the instrument be rectified; or
(c) a defendant in any such suit as is referred to in clause (b), may, in addition to any
other defence open to him, ask for rectification of the instrument.
(2) If, in any suit in which a contract or other instrument is sought to be rectified under
sub- section (1), the Court finds that the instrument, through fraud or mistake, does not
express the real intention of the parties, the Court may, in its discretion, direct
rectification of the instrument so as to express that intention, so far as this can be done
without prejudice to rights acquired by third persons in good faith and for value.
(3) A contract in writing may first be rectified, and then if the party claiming
rectification has so prayed in his pleading and the Court thinks fit, may be specifically
enforced.
(4) No relief for the rectification of an instrument shall be granted to any party under
this section unless it has been specifically claimed:
Provided that where a party has not claimed any such relief in his pleading, the Court
shall, at any stage of the proceeding, allow him to amend the pleading on such terms as
may be just for including such claim.

Remedies available to the party whose consent is not free : rescission, restoration - Sections 19,
19A, 67, 64, 65 of ICA, Loss of right of rescission - Sections 25 and 28 of SRA 1963
VOIDABILITY OF AGREEMENTS WITHOUT FREE CONSENT. S.19%-
When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if
he thinks fit, insist that the contract shall be performed, and that he shall be put in the
position in which he would have been if the representations made had been true.
Exception. Il such consent was caused by misrepresentation or by silence, fraudulent
within the meaning of section 17, the contract, nevertheless, is not voidable, if the party
whose consent was so caused had the means of discovering the truth with ordinary
diligence.
Explanation. A fraud or misrepresentation which did not cause the consent to a
contract of the party on whom such fraud was practised, or to whom such
misrepresentation was made, does not render a contract voidable.
Illustrations:-
(a)A, intending to deceive B, falsely represents that five hundred maunds of indigo are
made annually at A's factory, and thereby induces B to buy the factory. The contract is
voidable at the option of B.
(b)A, by a misrepresentation, leads B erroneously to believe that five hundred maunds
of indigo are made annually at A's factory. B examines the accounts of the factory, which
show that only four hundred maunds of indigo have been made. After this B buys the
factory. The contract is not voidable on account of A's misrepresentation.
(c)A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys
the estate. The estate is subject to a mortgage. B may either avoid the contract, or may
insist on its being carried out and the mortgage-debt redeemed.
(d)B, having discovered a vein of ore on the estate of A, adopts means to conceal, and
does conceal the existence of the ore from A. Through A's ignorance B is enabled to buy
the estate at an under-value. The contract is voidable at the option of A.
(e)A is entitled to succeed to an estate at the death of B. B dies; C having received
intelligence of B's death, prevents the intelligence reaching A, and thus induces A to sell
him his interest in the estate. The sale is voidable at the option of A.
3)POWER TO SET ASIDE CONTRACT INDUCED BY UNDUE INFLUENCE.
S.19-A:-
When consent to an agreement is caused by undue influence, the agreement is a
contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to
avoid it has received any benefit thereunder, upon such terms and conditions as to the
Court may seem just.
Illustrations:-
(a)A's son has forged B's name to a promissory note. B, under threat of prosecuting A's
son, obtains a bond from A for the amount of the forged note. IfB sues on this bond, the
Court may set the bond aside..
(b)A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence,
induces B to execute a bond for Rs. 200 with interest at 6 per cent. per month. The
Court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may
seem just.
4) CONSEQUENCES OF RESCISSION OF VOIDABLE CONTRACT.S.64:-
When a person at whose option a contract is voidable rescinds it, the other party thereto
need not perform any promise therein contained in which he is promisor. The party
rescinding a voidable contract shall, if he has received any benefit thereunder from
another party to such contract, restore such benefit, so far as may be, to the person from
whom it was received.
5) OBLIGATION OF PERSON WHO HAS RECEIVED ADVANTAGE UNDER
VOID AGREEMENT, OR CONTRACT THAT BECOMES VOID. S.65:-
When an agreement is discovered to be void, or when a contract becomes void, any
person who has received any advantage under such agreement or contract is bound to
restore it, or to make compensation for it, to the person from whom he received it.
Illustrations
(a)A pays B 1,000 rupees in consideration of B's promising to marry C, As daughter. C is
dead at the time of the promise. The agreement is void, but B must repay A the 1,000
rupees.
(b)A contracts with B to deliver to him 250 maunds of rice before the first of May. A
delivers 130 maunds only before that day, and none after. B retains the 130 maunds
after the first of May. He is bound to pay A for them.
(c)A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two
nights in every week during the next two months, and B engages to pay her a hundred
rupees for each nights performance. On the sixth night, A wilfully absents herself from
the theatre, and B, in consequence, rescinds the contract. B must pay A for five nights on
which she had sung.
(d)A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is
too ill to sing. A is not bound to make compensation to B for the loss of the profits which
B would have made if A had been able to sing, but must refund to B the 1,000 rupees
paid in advance.
6) EFFECT OF NEGLECT OF PROMISEE TO AFFORD PROMISOR
REASONABLE FACILITIES FOR PERFORMANCE. S.67:-
If any promisee neglects or refuses to afford the promisor reasonable facilities for the
performance of his promise, the promisor is excused by such neglect or refusal as to any
non- performance caused thereby.
Illustration:-
A contracts with B to repair B's house.
B neglects or refuses to point out to A the places in which his house requires repair.
A is excused for the non-performance of the contract if it is caused by such neglect or
refusal.

LOSS OF RIGHT OF RESCISSION-SECTIONS 25 AND 28 OF SRA.

Application of preceding sections to certain awards and testamentary
directions to execute settlements. S.25:-
The provisions of this Chapter (specific performance of contract) as to contracts shall
apply to awards to which [the Arbitration and Conciliation Act, 1996], does not apply
and to directions in a will or codicil to execute a particular settlement.
When rescission may be adjudged or refused. S. 27.
(1) Any person interested in a contract may sue to have it rescinded, and such rescission
may be adjudged by the Court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on its face and the
defendant is more to blame than the plaintiff.
(2) Notwithstanding anything contained in sub-section (1), the Court may refuse to
rescind the contract
(a) where the plaintiff laintiff has expressly or impliedly ratified the contract; or
(b) where, owing to to the change of circumstances which has taken place since the
making of the contract (not being due to any act of the defendant himself), the parties
cannot be substantially restored to the position in which they stood when the contract
was made; ог
(c) where third parties have, during the subsistence of the contract, acquired rights in
good faith without notice and for value; or
(d) where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.
Module no 4
DEFINITIONS, MEANING, IMPORTANCE AND ESSENTIAL ELEMENTS OF
CONSIDERATION.
1) INTRODUCTION:-
Consideration is one of the essential elements of contract. Subject to certain exceptions
an agreement without consideration is null and void. Consideration is a technical term
used in the sense of quid pro quo" i.e. Something in return. When a party to an
agreement promises to do something he must get something' in return. This 'something'
is defined as a consideration. In short consideration is 'something' which is of some
value in the eyes of law. It may be some benefit, right, interest or profit given to the
party or received by the promisee as inducement of promise. Therefore, consideration is
a price for promise which is of some value.
2) DEFINITION S. 2(d):-
"When at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain
from doing, something. such act or abstinence or promise is called a consideration for
the promise."
A consideration theas is some act, or abstinumce done or promised to be done, it the
desire of pom The analysis of definition of consideration shows following essential parts
of the deration-
a)thee consideration is an act or abstinence,
b)such act or abstinence should be done at the desire of promisor, (promissory astoppel)
c)sach act or abstinence may be done by promisee or any other person; (privity of
consideration or contract)
d)such act or abstinence is either already executed, or is in the process of executing or
may be still executory. (past, present or future consideration).
3. ESSENTIALS OR LEGAL RULES AS TO CONSIDERATION
a) The consideration must move at the desire of the promisur.
An act constituting consideration niust have been done at the desire or request of the
promisor. If it is done at the instance of a third party or without desire of the promisor,
it will not be a good consideration.
b) Consideration may move from the promissee or any other person.
A consideration if furnished by any other person, the promissee becomes a stranger to
the consideration. Only those parties to the contract can enforce the contract and a
stranger to the consideration, cannot enforce a contract. Under the English law,
consideration must move from the
promisee and promisee only
c) The consideration may be past, present or future.
When consideration by party for a present promise was given in a past i.e. before the
date of promise, it is said to be past consideration, whereas, when the promise and
consideration are completed simultaneously, it is said to be present consideration, eg.
customer pays the price immediately. for article be buys from the seller. When the
consideration from one party to the other is to paus subsequently to the making of
contract, the consideration is said to be future or executor.
d) The considerationneed not be adequate.
A consideration means something for something of some value in return. This
"something in return' necessarily be equal in value to 'something given'. The law simply
provides that a contract should be supported by consideration. The parties are at liberty
to make their own bargains and to decide what value they should give or get for their
promises. According to Anson, "consideration need not be adequate to promise, but it
must be of some value in the yes of law."
e) The consideration must be real and not illusory.
Though as mentioned above, consideration need not be adequate, but it must be real,
competent and of some value in the eyes of law. It must be real and not illusory. There is
no real consideration in the following cases-
1) Physical impossibility. When the promise of one is physically impossible to be
performed, the consideration is not real. e.g. A promises to put life into the dead wife of
B, if B pay him Rs. 500/-A's promise is physically impossible of performance.
2) Legal impossibility. Illegal promises cannot have real consideration. A debt of one
person cannot be repaid to third party. e.g. A owes Rs. 100/- to B. He promise to pay Rs.
20 to C, the servant of B, who in return promises to discharge A from the debt. This is
legally impossible because C cannot give discharge for a debt due to B. his master.
3)Uncertain consideration. When consideration for promise is not certain, it cannot be
real. e.g. A promise for payment of reasonable amount is uncertain.
4) Illusory consideration. It has reference to imagination. If the consideration is illusory,
it cannot be called real.
f)The consideration may be either positive or negative.
As per the definition of consideration u/s 2(d) of Indian Contract Act, the consideration
may be a promise to do something or abstain from doing something. It is either to do or
not to do something hence it is positive or negative.
g) A consideration may be an act, abstinence or forbearance or a return of
promise. The term, 'forbearance to sue' means that the plaintiff has a right of action
against the defendant or any other person, and on a promise by the defendant plaintiff
refrains from bringing the legal action. The forbearance to sue is regarded as a valid
consideration.
h) The consideration must not be illegal, immoral or opposed to public
policy. (S.23) - Every agreement of which the object or consideration is immoral is
unlawful. What is 'immoral' depends upon the standard of morality prevailing at the
particular time and approved by the Court. The immoral acts extends to sexual
immorality, forbearance of sexual immorality, interference with marital relations and
such acts which are against good public morals, e. g. A agrees to let his daughter to hire
to B for concubinage. The agreement is void, because it is immoral, though the letting
may not be punishable under the Indian Penal Code, 1860.

No consideration, no contract, and exceptions to the rule

2) DEFINITION OF CONSIDERATION:-
S. 2 (d) Consideration: When, at the desire of the promisor, the promisée or any other
person has done or abstained from doing, or does or abstains from doing, or promises to
do or to abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise
3) AGREEMENT WITHOUT CONSIDERATION VOID S. 25:-
Agreement without consideration is void, unless it is in writing and registered or is a
promise to compensate for something done or is a promise to pay a debt barred by
limitation law - An agreement made without consideration is void, unless -
a) it is expressed in writing and registered under the law for the time being in force for
the registration of documents, and is made on account of natural love and affection
between parties standing in a near relation to each other, or unless
b)it is a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally
compellable to do; or unless
c) it is a promise, made in writing and signed by the person to be charged therewith, or
by his agent generally or specially authorised in that behalf, to pay wholly or in part a
debt of which the creditor might have enforced payment but for the law for the
limitation of suits. In any of these cases, such an agreement is a contract.
4) EXPLANATIONS:-
a) Nothing is this section shall affect the validity, as between the donor and donee, of
any gift actually made.
b)An agreement to which the consent of the promisor is freely given is not void merely
because the consideration is inadequate; but the inadequacy of the consideration may be
taken into account by the court in determining the question whether the consent of the
promisor was freely given.
5)EXCEPTIONS TO S. 25:-
Ex nudopacto non oritioactio'means agreement without consideration is null and void,
therefore, cannot be enforced. As per S. 25 of Indian Contract Act, an agreement without
consideration is declared to be void, but there are following exceptions to this rule, în
which an agreement is enforceable even though they are made without consideration.
a)Love and affection. S. 25(1) Where an agreement is expressed in writing and
registered under the law for the time being in force for the registration of documents
and is made on account of natural love and affection between parties standing in a near
relation to each other, it is enforceable even if there is no consideration. In short, a
written and registered agreement based on natural love and affection between near
relatives is enforceable even if it is made without consideration..
Example: A for natural love and affection promises to give his son B Rs. 1000/-. A puts
his promise to B into writing and register it. This is a contract.
b) Compensation for voluntary services. S. 25(2). A promise to compensate
wholly or in part, a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration. In simple words, a
promise to pay for a past voluntary service is binding .
pay you Rs. 1000/-. There is a contract between A and B.
c) Promise to pay a time barred debt. S. 25(3) - A promise by a debtor to pay a
time barred debt is enforceable provided it is made in writing and is signed by the
debtor or by his agent generally or specially authorized in the behalf. The promise may
be to pay the whole or any part of the debt. The debt must by such 'of which the creditor
might have enforced payment but for the law for the limitation of suits.
A debt is barred by limitation if it remains unpaid or unclaimed for a period of three
years. Such debt becomes legally irrecoverable.
d) Completed gift. (Explanation 1 to Sec. 25)
Explanation 1 - Nothing in this section shall affect the validity, as between the donor and
the donee, of any gift actually made.
Thus the rule 'agreement without consideration' does not apply to completed gift or any
gift actually made.
e) Agency. S. 185.
No consideration is necessary to create an agency. There may be or may not be a
consideration in agency whereby a agent may agree to act for principal without any
consideration.

Doctrine of privity and exceptions

MEANING OF PRIVITY OF CONTRACT:- 'Privity of Contract' means relationship
subsisting between the parties who have entered into contractual obligations. It means a
person, who is not party to the contract cannot sue for carrying out the promise made by
the parties to a contract. In other words, a contract cannot be enforced by a person who
is not party to the contract. A valid contract between the parties creates certain rights
and duties in favour of the parties and no other person can acquire rights or incur
liabilities under it if not party to the contract.
There are two consequences of doctrine of privity of contract:-
1.A person who is not party to a contract cannot sue upon it even though the contract is
for his benefit, and he provided for consideration.
2.A contract cannot confer rights or impose obligation arising under it on any person
other than parties to it. Under English Law, only party to the contract i.e. a promisor
and promisee ean enforce the
contract against each other and a stranger though beneficiary cannot enforce the
contract against each other.
EXCEPTIONS TO PRIVITY OF CONTRACT OR CONSIDERATION:-
In the course of time, the Courts have introduced number of exceptions in which the
rule of privity of contract is disregarded, i.e. not followed and party can enforce a
contract which has been made for his benefit but without his being party to it.
a)Trust or charge: A person in whose favour a charge or other interest in some
specific property has been created may enforce it though he is not a party to the
contract,
b)Marriage settlement, partition or other family arrangement: Where an agreement
is made in connection with marriage, partition or other family arrangements and a
provision is made for a benefit of a person, he may take advantage of that agreement
although he is not a party to it.
c) Acknowledgement or estoppel: Where the promisor by his conduct,
acknowledges or otherwise constitutes himself as an agent of a third party, a binding
obligation is thereby incurred by him towards the third party, e.g. A receives some
money from T to be paid over to PA admits of this receipt to P. P can recover the amount
from A who shall be regarded as the agent of P.
Where by the terms of a contract a party is required to make a payment to a third person
and he acknowledges it to that third person, then a binding obligation is thereby
incurred to him.
d) Covenants running with the land: The principle relating to transfer of
immovable property, is taken from the famous case of Tulk V/s. Moxhay, 1919that a
person who purchases a land with notice that the owner of the land is bound by certain
duties created by an agreement or covenants affecting the land shall be bound by them
although he was not a party to the agreement.
e) Contracts entered into through an agent: The principal can enforce the
contract entered into by his agent provided the agent acts within the scope of his
authority and in the name of the principal.
MODULE-05 VOID AGREEMENTS SECTIONS 23-30 OF ICA, 1872
1.UNLAWFUL AGREEMENTS, CIRCUMSTANCES IN WHICH
AGREEMENTS ENFORCED EVEN IF UNLAWFUL: SECTIONS 23-24, 57-58
OF ICA, 1872, SECTION 27 OF SRA, 1963
1) INTRODUCTION:-
It is one of the most important requirement for the formation of valid contract that the
parties must contract for a lawful object. The object and consideration must be lawful. A
contract is valid and enforceable only if it is made for lawful consideration and with a
lawful object. The words, 'object and 'consideration' in S.23 are not used synonymously.
The term 'object' is used to show the purpose or the design. In some cases, the
consideration for an agreement may be legal but the object may be unlawful, Such
contracts are void.
2)ESSENTIALS AND LEGAL RULES FOR A LAWFUL OBJEFCTAND
CONSIDERATION:-
What consideration and objects are lawful, and what not S. 23 - The consideration or
object of an agreement is lawful, unless-
a) it is forbidden by law; or
b) is of such a nature that, if permitied, it would defeat the provision of any law; or
c) is fraudulent; or
d) involves or implies injury to the person or property of another; or
e) 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 unlawfal.
Every agreement of which the object or consideration is unlawful, is void.
a)The object and consideration must not be forbidden by law
An agreement which is declared illegal by law for the time being not enforced in India.
1) when it is punishable by the criminal law of the country, or
i) when it is prohibited by special legislation or regulations made by competent
authority under the powers derived from the legislature.
b) The object and consideration must not defeat the provision of law:
Sometimes the object of, or consideration for, an agreement is such that though not
directly forbidden by law, it would, if permitted, defeat the provision of any law then
such agreement is also void.
c) The object and consideration must not be fraudulent:
An agreement made for a fraudulent purpose is void. Where the parties agreed to
impose a fraud on third person, their agreement is unlawful and void.
e.g. A debtor agreed to pay separate commission or to give a preference, to a creditor in
order to induce his consent to a composition which is proposed with other creditor, the
object of agreement is fraduulent.

d) the object and consideration must not be injurious to another person or

his property
Injury means wrong, harm or damage. Person means one's body and property include
both movable as well as immovable. If the object of an agreement is such that it involves
or implies injury to the person or property to another, the agreement is unlawful and
void.
e)The object and consideration must not be immoral:
Every agreement of which the object or consideration is immoral is unlawful. What is a
'immoral depends upon the standards of morality prevailing at a particular time and
approved by the Court. The immoral acts extends to sexual immorality, forbearance of
sexual immorality, interference with marital relations and such acts which are against
good public morals.
f) The object and consideration should not be opposed to public policy:
An agreement opposed to public policy is unlawful. Public policy is a wider term, and it
is difficult to determine its limits with any degree of exactness. The term 'public policy'
in its broadest sense means that sometimes the Court will, on consideration of public
interest, refuse to enforce a contract. The circumstances in which a contract is likely to
be struck down being opposed to public policy are creation of perpetuity, a contract in
restraint of trade, gambling wagering contract or contract with alien enemies,
interference with administration of justice etc. are all unlawful things on the ground of
public policy.
3) RECIPROCAL PROMISE TO DO THINGS LEGAL, AND ALSO OTHER
THINGS ILLEGAL. S.57:-
Where persons reciprocally promise, firstly, to do certain things which are legal, and,
secondly, under specified circumstances, to do certain other things which are illegal, the
first set of promises is a contract, but the second is a void agreement.
4) ALTERNATIVE PROMISE, ONE BRANCH BEING ILLEGAL.S. 58:-
In the case of an alternative promise, one branch of which is legal and the other illegal,
the legal branch alone can be enforced.
WHEN RESCISSION MAY BE ADJUDGED OR REFUSED.SECTION 27.
1). Any person interested in a contract may sue to have a rescinded, and such rescission
may be adjudged by the Court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on its face and the defendant
is more to blame than the plaintiff.
(2) Notwithstanding anything contained in sub-section (1), the Court may refuse to
rescind the
contract
(a) where the plaintiff has expressly or impliedly ratified the contract; or
(b) where, owing to the change of circumstances which has taken place since the making
of the contract (not being due to any act of the defendant himself), the parties cannot be
substantially restored to the position in which they stood when the contract was made;
ог
(c) where third parties have, during the subsistence of the contract, acquired rights in
good faith without notice and for value; or
(d) where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.
Explanation. In this section contract, in relation to the territories to which the Transfer
of Property Act, 1882 (4 of 1882), does not extend, means a contract in writing.
MEANING OF VOID AGREEMENT S 2 (g):-
As per S. 2 (g) of the Indian Contract Act, "An agreement not enforceable by law is said
to be Void agreements need not necessarily be illegal. In case of void agreements the
collateral agreements do not become void.
CLASSIFICATION OF VOID AGREEMENT:-
a) agreement void-ab-intio
These agreements are void from the very beginning therefore such agreements cannot
be ratified subsequently for any reason. There are three agreements which are void-ab-
initio as under –
a) minor's agreement,
b)unsound mind-person making an agreement. (Please see chapter of agreement by
person of unsound mind page no. 38)
c)mistake of fact. (Please see Chapter of mistake of fact page no. 53)
b) Agreements declared void by law
Following agreements are void declared by law
a) Agreement wherein the consideration and objects are unlawful, S.23,
(Please see chapter of Legality of object and consideration)
b) Agreements void, if considerations and objects unlawful in part, S. 24,
If any part of a single consideration for one or more objects, or any one or any part of
any one of several considerations for a single object, is unlawful, the agreements is void.
c) Agreement without consideration, S.25:
d) Agreement in restraint of marriage, S.26:
Every agreement in restraint of the marriage of any person, other than a minor, is void.
These agreements are declared void by law except child marriage. One cannot prohibit
other from marrying with person of his own choice when he is capable, i.e. major and
sound mind.
The right to marry is freedom, liberty and one cannot be deprived of this right. A agrees
to give Rs. 10000/- to B if he not marries to C. This agreement is void by law.
e) Agreement in restraint of trade is void, S.27:
Every agreement by which any person is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void.
f)Agreement in restraint of legal proceeding, S.28:
Every agreement -
a) by which any party thereto is restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus enforce his rights; or
) which extinguishes the rights of any party thereto, or discharges any party thereto
from any liability, under or in respect of any contract on the expiry of a specified period
so as to restrict any party from enforcing his rights, is void to that extent.
Exception: Reference made by parties to agreement to an arbitrator to settle the dispute,
in future or any question refer arbitration between them which has already arisen.
g) Uncertain agreement, S.29:
Agreements, the meaning of which is not certain, or incapable of being made certain, are
void.
h) Wagering agreement, S.30:
Agreements by way of wager are void; and no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person to abide by the
result of any game of other uncertain event on which any wager is made.
The term 'wager' means a bet. Wagering agreement means an agreement by which one
person agrees to pay money to another on the happening of or non-happening of a
future, uncertain event. A wagering agreement being void cannot be enforced in any
Court of law, and no suit shall be admitted for recovering any amount under wagering
agreement.
Essentials of wagering agreements :
a) The promise must be conditional on an event happening or not happening of an
uncertain event.
b) Each party must stand to win or loose under the terms of agreement.
c) There must be a promise to pay money.
d) The event must be uncertain one. If one of the parties has the event in his own hands,
the transaction is not a wager.
e) No party should have a propriety interest in the events.
Nature of wagering agreement :
This is a bet or gambling, when two or more persons agree as to result, event and both
are having claims opposite to each other. One person is ascertaining and one is denying
the same. They are not interested in result. Either shall pay the other. Loss for one is
gain for other

EXCEPTIONS TO AGREEMENTS:
1)Games of skill-, athletic competition, cross-word competition etc.
 ii. Horse racing is permitted by some local laws and State Govt may authorise the
horse racing competition. Us 30 of Indian Contact Act, an agreement to contribute
towards any prize de sum of the money worth Rs. 500 to be awarded to the winner of
the horse race is not rendered void.
iii) Shares: Share market transaction in which the parties have a clear intention to
give and take delivery of shares are not wagering transaction
iv) Contract of insurance is not a wagering agreement but life insurance is wagering
agreement Price competition:Under the Prize Competition Act. 1955,
v) prize competition in gains ofskill are not wagers if the amount of prize does not
exceed Rs. 1000
vi) Lotteriespermitted and recognised by the Gov
1) Agreement to do impossible act, S. 56 The agreement to do impossible act is void
because the performance of which is not possible There are two kinds of impossibility
1) Physical impossibility - When the promise of one is physically impossible to be
performed, the consideration is not real. c g. A promises to put life into the dead wife of
B, if B pay him Rs. 500-A's promise is physically impossible of performance.
ii) Legal impossibility - Illegal promises cannot have real consideration. A debt of
one person cannot be repaid to third party e g. A owes Rs. 100-to B he promise to pay
Rs. 20 to C, the servant of B, who im return promises to discharge A from the debt. This
is legally impossible because C cannot give discharge for a debt due to B, his master, e.g.
A agrees with B to discover a treasure by magic. The agreement is void Contract to do
act was possible initially when entered but subsequently, (afterwards) be becomes
impossible or unlawful by reason of some event is also void e.g. A and B contract to
marry each other. Before the time fixed for the marriage A goes mad, the contract
becomes void.
EFFECT OF VOID AND OF UNLAWFULAGREEMENTS
Void Contract: Void contract is that which is not enforceable by law. S. 2 (J) of Indian
Contract Aet defines void contract as under - "A contract which ceases to be enforceable
by law becomes void when it eeases to be enforceable." In other words, a void contract is
a contract which was valid when entered into but which subsequently became void due
to impossibility of performance, change of law or some other reason.
Illustration - A, agrees to marry B. The date of marriage was fixed. A dies before the
marriage. This contract was valid at the time of its formation but became void on the
death of A.
Illegal contract: The word 'Illegal' means contrary to the law and the term 'contract'
refers to an agreement which is enforceable by law. An illegal contract is always void
because it is against, or contrary to, a law enforced in the country. Thus, an agreement
or contract to commit robbery or cheating or murder, is an illegal or unlawful contract.
All illegal contracts are void, but all void contracts are not necessarily illegal, e.g.
wagering contract or a contract with the minor is void but not illegal.
Void agreement: As per S. 2(g) of Indian Contract Act, "An agreement not enforceable
by law is said to be void". Such agreements are void-ab-initio means void from the
beginning, eg. minor's agreements are void-ab-initio.

MODULE-06
6
CONTINGENT CONTRACTS AND QUASI-CONTRACTS
CONTINGENT CONTRACTS AND THEIR ENFORCEMENT-SECTIONS 31-36
OF ICA, 1872:
A) DEFINITION OF CONTINGENT CONTRACT, CONTINGENT AND
ABSOLUTE OBLIGATIONS
B) EFFECT OF HAPPENING & NON-HAPPENING OF EVENT
C) ENFORCEMENT OF CONTINGENT CONTRACTS
1) INTRODUCTION:-
A contract is called contingent when the performance of the contract depends upon the
happening or non-happening of some contingency i.e. some uncertain event. In simple
words, contingent contract is a conditional contract and such contracts are valid
contracts.
2) DEFINITION OF CONTINGENT CONTRACT:-
The definition of contingent contract is given in S. 31 of Indian Contract Act which reads
as under: -
"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."
Illustration: A contracts to pay B Rs. 10,000/-if B's house is burnt. This is contingent
contract. A agrees to pay B a sum of Rs. 10000/- if B marries to C. This is a contingent
contract. Contract of insurance are contingent contracts but wagering agreements are
not contingent contract.
The contract of insurance, indemnity and guarantee are the example of contingent
contract. The contingent contract does not depend for its performance on the will and
pleasure of the parties like ordinary contract. In contingent contract no rights and
obligation between the parties are created at the time of formation of the contract, but
the creation of such rights and obligations is postponed until the happening or non-
happening of a particular event. Therefore, the contract becomes enforceable some
future date when the event has happened or not happened.
In the above problem, A contracts to pay B Rs. 10000/- if B's house is burnt, the liability
of A to pay Rs. 10000/- to B is not created until B's house is burnt and this contract can
be enforced by B only when his house is burnt and not otherwise.
In this problem burning of house of B is an event, which is not depending upon the will
and the plessure of A or B. Such event is called collateral event, because no action on the
part of any contracting party is required for the occurrence of such event. Moreover,
such event must be uncertain. If the event is certain i.e. bound to happen then contract
is not contingent contract. The event upon which the performance of the contract
depends, may also be 'act of party'. Thus a contract which is dependent upon some act of
party is also contingent contract,
3) ESSENTIALS/CHARACTERISTICS OF CONTINGENT CONTRACT:
a) There must be a contract to do or not to do something.
b) It must depend upon the happening or non-happening of some future uncertain
event.
c) The event must be collateral or incidental to the contract.
A contingency involved in the contract should not be dependent upon the mere will or
pleasure of any one of the parties to the contract parties to constitute contingent
contract. If the promisor performs his promise according to his will or pleasure, then
there is no promise. Hence it cannot be deemed to depend on contingency.
e.g. A seller agrees to give delivery of the goods to the buyer after a month provided the
buyer makes payment within five days. This is an absolute contract and not contingent
contract because the event of making payment by the buyer is the essential and integral
part of the contract and therefore, not collateral to the contract.
4)LEGAL RULES REGARDING CONTINGENT CONTRACT:-
i) Enforcement of contract contingent on happening of an event. S. 32
Contingent contract to do or not to do anything if an uncertain future events happens,
cannot be enforced by law unless and until that event has happened. If the event
becomes impossible, such contract becomes void.
ii) Enforcement of contracts contingent on an event not happening: 8.33
Contingent contracts to do or not to do anything, if an uncertain future event does not
happen, can be enforced when the happening of that event becomes impossible, and not
before.
ill) When event on which contract is contingent to be deemed impossible, if
it is the future conduct of a living person: S.34
If the future event on which a contract is contingent is the way in which a person will act
at unspecified time, the event shall be considered to become impossible when such
person does anything which renders it impossible that he should so act within any
definite time, or otherwise than under further contingencies..
iv) When contracts become void, which are contingent on happening of
specified event within fixed time: S.35:
Contingent contracts to do or not to do anything if a specified uncertain event happens
within a fixed time, become void if at the expiration of the time fixed, such event has not
happened or if, before the time fixed, such event becomes impossible.
When contracts may be enforced, which are contingent if specified event not happening
within fixed time-contingent contracts to do or not to do anything, if a specified
uncertain event does not happen within a fixed time, may be enforced by law when the
time fixed has expired and such event has not happened, or, before the time fixed has
expired, if it becomes certain that such event will not happen.
v) Agreement contingent on impossible events void: S.36
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.

Quasi-contracts - Sections 68-71, 73(Para 3) of ICA :

a) Five kinds of quasi-contracts stated in the Act
b) Doctrine of restitution
c) Effect of breach of quasi-contractual obligation
MEANING OF QUASI-CONTRACT:-
Quasi means half way or partial. Every contract of two parts 1) formative 2)
consequential. Formative part gives procedure as to how contract is formed step by step.
There is proposal, acceptance which form promise. A set of promises is an agreement.
(Promise X Promise = agreement). If the agreement is enforceable by law then it
becomes a contract.
Consequential part:
It is resulted with discharged of contract, performance, breach of contract or
anticipatory breach of contract. Consequential part gives rise to rights and liabilities of
the parties. To have valid contract both parts should be present. So formative part +
consequential part = absolute contract.
But under certain circumstances the formative part of contract is absent, which means
there is no proposal or acceptance or promise or consideration but consequential part is
present and certain relations are created in between the parties. These relations are
resembling with those created by contract. Thus in short quasi - contract are those
relations resembling with those created by contract.
3) KINDS OF QUASI-CONTRACT:-
S.68 to 72 of Indian Contract Act deals with quasi - contract, which are as follows -:
a) Necessaries supplied to person incapable of contracting, S.68:
These are the necessaries supplied to persons who are minor or unsound mind, of food,
cloth etc, by another person. Such another person is bound by law to support such
minor or lunatic, unsound person.
S. 68 Claim for necessaries supplied to person incapable of contracting, or on his
account-If a person, incapable of entering into a contract or any one whom he is legally
bound to support, is supplied by another person with necessaries suited to his
conditions in life, the person who has furnished such supplies is entitled to reimbursed
from the property of such incapable person.
Illustration-
1. A supplies B, a lunatic, with necessary suitable to his condition in life. A is entitled, to
be reimbursed from B's property.
2. 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.
The necessaries supplied should be suited to the life of such another, then only the
amount spent on him is justified and recoverable.
S.68 is specifically incorporated in the Indian Contract Act, so as to protect minor,
unsound to prevent their exploitation. Because as per S. 11 of Indian Contract Act these
persons who are supplied with nevessaries are incompetent to contract. Thus there is
no proposal or acceptance but the other person is bound by law to supply necessaries
and relations created are resembling as those created by contract so it is a quasi-
contract.
What are necessaries, which are suited to life, is question of fact. It is dependant upon
the standard of person. It is a relative term, which changes from fact to fact.
b) Reimbursement of person paying money due by another, in payment of
which his is interested., S.69,
Reimbursement of person paying money due by another, in payment of which he is
interested A person who is interested in the payment of money which another is bound
by law to pay, and who therefore, pays it, is entitled to be reimbursed by the other.
The person making a payment is not bound by law but such person is interested in such
payment and he makes the payment of that amount.
S.69 declares that such person is entitled to reimburse of such payment made by him
even though there was no specific or express contract between the parties.
Illustration: L is the owner of house, and T is the tenant. There is water connection
provided by the corporation and it was agreed that water expenses shall be paid by L.
But L failed. Corporation gave a notice to pay water expenses but L did not pay. T
informed to L. that if payment not made corporation will cut off water supply but L did
not pay. T made the payment to avoid further consequences. Here T is entitled to
recover and reimbursed even in absence of contract.
c)Obligations of person enjoying benefit of non-gratuitous act, S.70:
S. 70 creates liability to pay for the benefit of an act which the doer did intending to do
gratuitously.
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
later is bound to make compensation to the former in respect of or to restore, the thing
so done or delivered.
Illustrations
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. The Supreme Court in Union of
India V. Sita Ram, AIR 1977, SC 329held that before any right of action u/s 70 arises,
three conditions must be satisfied -
(i) The thing must have been done lawfully for another person.
(ii) The person doing the act should not have intended to do it gratuitously.
(iii) The person for whom the act is done must have enjoyed the benefit of the act.
Under certain circumstances the person is compelled to pay the amount but it is not
gratuitous act and therefore he can recover the amount paid. The plaintiff paid the
amount for the benefit of defendant.
d) Obligations arising out of finder of goods, S.71,
S. 71. Responsibility of finder of goods. - A person who finds goods belonging to another
and takes them into his custody, is subject to the same responsibility as a bailee.
The finder of good is treated as a bailee, and the person who lost the good is treated as
bailor.
There is no express contract between the parties yet the duty is cast on finder of goods
as a bailee and so the goods found must be redelivered to the true owner. He must take
efforts to find out the true owner. If owner is not found or traced in spite of efforts, then
he can retain the goods for himself.
The finder of goods is entitled to reward if any expenses incurred by him to find the
owner of goods and expenses incurred for the maintenance of thing found to him.
If the things are perishable, then goods can be sold and sale proceed is kept till the
finder of goods is traced. If any expenses to be incurred for the maintenance of the
goods exceed to 2/3 of the price of the goods found then finder may sell the goods and
kept the proceed or amount by reducing the amount of expenses incurred for
maintenance of goods.
The finder of the goods can sell the goods in the following cases -
1) when the thing found is in danger or perishing.
ii) when the owner cannot, with reasonable diligence, be found out;
when the owner is found out, but he refuses to pay the lawful charges of the finder;
iv) when the lawful charges of the finder, in respect of the thing found, amount to 2/3rd
of the value of the thing found.
e) Obligations arising out of money paid under coercion, mistake or
voidable contract, S.72.
15 S.72 Liability of person to whom money is paid, or thing delivered by mistake or
coercion - A person to whom money has been paid, or anything delivered, by mistake or
under coercion, must repay or return it.
Illustrations
(i) A and B jointly owe 100 rupees to C. A alone pays the amount to C and B, not
knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.
(ii) A railway company refuses to deliver up certain goods to the consignee, except upon
the payment of an illegal charge for carriage. The consignee pays C sum charged in order
to obtain the goods. He is not entitled to recover so much of the charge as was
illegally excessive. There are two conditions to be satisfied -
a) payment should have been made under compulsion or pressure and not voluntarily
and the defendant should be bound to pay then only such amount paid by plaintiff can
be recovered by him;
b) payment made under mistake of fact can be recovered provided that party paying
would have been liable to pay. The goods delivered by mistake to another can be
recovered, if the goods are consumed then its value can be recovered.
EFFECT OF BREACH OF QUASI-CONTRACTUAL OBLIGATIONS:-
S. 73 and 74 of the Indian Contract Act which deals with "Compensation for loss or
damage caused by breach of contract" is based on the judgmentHadley v/s. Baxendale,
1854 by Justice Alderson The rules as given in S. 73 are as follows:-
When a contract has been broken, the injured party is entitled to-
i) such damages which naturally arose in the usual course of things from such breach.
This relates to ordinary damages arising in the usual course of things;
ii) such damages which the parties knew, when they made the contract, to be likely to
result from the breach. This relates to special damages, but -
such compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breach; and,
iv) such compensation for damages arising for breach of a quasi-contract shall be same
as in any other contract.
MODULE - 07
PERFORMANCE AND DISCHARGE OF CONTRACT
1. OBLIGATION TO PERFORM OR OFFER TO PERFORM; WHO MUST
PERFORM, EFFECT OF DEATH ON PERSONAL CONTRACTS, RIGHTS AND
LIABILITIES UNDER A CONTRACT: SECTIONS 37-41 OFICA, 1872
2. DEVOLUTION OF JOINT RIGHTS AND LIABILITIES: SECTIONS 42-45
OF ICA
3. TIME & PLACE OF PERFORMANCE, RIGHT TO TERMINATE IF TIME IS
OF ESSENCE OF CONTRACT: SECTIONS 46-50, 55 OF ICA, 1872
1) INTRODUCTION:-
Chapter IV of Indian Contract Act comprising of Ss.37 to 67 deals with performance of
contract. After the formation of contract, the next stage is for performance of contract.
The contracts are made or entered for the purpose of performing, executing the same
and thereby completing the contractual obligations. A valid contract creates rights and
obligations on the parties to the contract, therefore both the parties to the contract to
perform their respective promises under the contract.
2) OBLIGATION OF PARTIES TO CONTRACT:-
Sec. 37 of the Indian Contract Act provides that "the parties to the contract must either
perform, or offer to perform, their respective promises, unless such performance is
dispensed with or excused under the provisions of this Act, or of any other law."
Promises bind the representatives of the promisors in case of the death of such
promisors before performance, unless a contrary intention appears from the contract.
Illustration: A promises to deliver goods to B on a certain day on payment of Rs.
1000/-. A dies before that day. A's representatives are bound to deliver the goods to B,
and B is bound to pay the Rs 1000/- to A's representatives
Every contract creates legal obligation... Performance of contract means carrying of
these obligations. So each party must perform or offer to perform his promise under the
contract, unless it is excused or exempted by any law.
Performance may be actual or attempted. When the parties have done what they were
supposed to de under the contract, and there after nothing is left for them to do. It is
fulfillment of their obligations by both the parties to the contraét. By performance, the
contract comes to happy ending
3) WHO CAN PERFORM UNDER THE CONTRACT:-
General rule is that the promisors to the contract basically to perform the promise but
there are other persons also who may perform the promise under certain circumstances.
Following persons can perform the contract -
a) The parties (S. 37): The parties to the contract must either perform, or offer to
perform, their respective promises, unless such performance is dispensed with or
excused under the provisión of this Act, or of any other law.
b) The promisor himself (S. 40): If it appears from the nature of the case and from
intention of the parties to the contract, that a promise contained in it must be performed
by the promisors only then promisors alone to perform the same or the promisor or his
representative may appoint a competent person to perform it. Generally, the contract
involving personal skill and knowledge of the promisor, can be performed by promisor
alone, e. g.
(a) A is a famous singer. B organized A's musical performance. In this case A must
perform personally his promise.
(b) A promises to paint a picture for B. A must perform his promise personally.
c) The Agent (S. 40): The contracts which are not of personal nature involving
personal skill of the promisor, may be performed through an agent or representatives
appointed by the promisor for this purpose., However, the agent must be a competent
person to perform the contract.
d) The legal representative (S.37): In case of the death of a promisor, the legal
representative of the promisor must perform the contract unless a contrary intention
appears in the contract. Thus legal representatives of the deceased party entered into the
shoes of the promisor after death of the parties and not before.
However, contracts of personal nature cannot be performed and compelled to be
performed by the legal representatives of the deceased parties Such contracts comes to
an end after the death of the promisor, e g. A promises to marry B. A dies. A's legal
representative cannot perform this contract.
e)The third party. (S. 41): A contract can be performed by third party in certam
cases, who is not a party to the contract, on behalf of the promisor. S. 41 provides effect
of accepting performance from third person. It states, "When a promisee accepts
performance of the promise from a third person, he cannot afterwards enforce it against
the promisor."
f)The joint promissors (S. 42 & 43): In case of joint promise, where there are
several promissors All of them jointly have to perform the promise or in case of death of
any one of them, his legal representative along with surviving joint promissors.
Sec. 42: Devolution of joint liabilities: When two or more persons have made a
joint promise, then, unless a contrary intention appears by the contract, all such
persons, during their joint lives, and, after the death of any of them, his representative
jointly with the survivor or survivors, and, after the death of the last survivor, the
representatives of all jointly, must fulfil the promise.
'Devolution' means passing over from one person to another. When two or more
persons, make a joint promise to other or others, they are known as joint promissors. If
a promise made to two or more persons, they are called as joint promisee.
S. 43: Any one of joint promisors may be compelled to perform: When two or
more persons make a joint promise, the promisee may, in the absence of express
agreement to the contrary, compel any, one or more, of such joint promisors to perform
the whole of the promise.
In other words the liability of joint promissors is joint and several i.e. each is liable
individually to perform and all are liable jointly to perform.
4) TIME, PLACE AND MANNERS OF PERFORMANCE (S. 46 to 50, & S. 55):-
The time, place and manner of the performance of contract are matters normally fixed
at the desire and convenience of the parties to the contract. The various rules regarding
time and place of performance are as under : -
a) Where no time is specified. (S. 46): Where the time of performance is not
specified in a contract and the promisor has undertaken to perform without being asked
by the promisee, the contract must be performed within a reasonable time. "What is
reasonable time" depends upon fact, circumstances, usage of business, etc.
b) Where the time is specified. (S. 47): Where time for performance is fixed and
the promisor has promised to perform it without application by the promisee, then the
promisor must perform it at the time and place fixed in the contract, during business
hours.
c) Application for performance on certain day to be at proper time and
place (S. 48): When a promise is to be performed on a certain day, and the promisor
has not undertaken to perform it without application by the promisee, it is the duty of
the promisee to apply for the performance at a proper place within the usual hours of
business.
d) Where no place is fixed (S. 49): Where the place of performance is not specified
in a contract and the promise to be performed without being asked by the promisee, the
promisor should ask the promisee to fix a reasonable place and then he should perform
the contract at the place fixed by the promisee.
e)Manner or time of performance (S. 50): Where the promisee prescribes the
manner or time for performance, in such case the promise must be performed in the
manner and at the time prescribed by the promisor.
5) TIME AS ESSENCE OF CONTRACT:-
The term "time as essence of contract" means that the time is very important factor of
the contract. It is an essential element and the contracting parties must perform their
respective promises within the specified time. In such cases, time of the performance of
the contract must be strictly followed for the existence of the contract. Sometimes it is
specifically mentioned in the contract that "time is essence of the contract" but when it
is not mentioned in the contract, then it can be gathered form the intention of the
parties. Thus "time is essence of contract", depends on the nature of contract, subject
matter of contract, object of the contract, terms decided between the parties, etc.
Whether time is the essence of contract, is a mixed question of law, and fact.
In commercial transactions, the time is generally considered to be the essence of
contract. Therefore, in a contract for sale or purchase of goods where the prices changes
rapidly in the market, the time and delivery of payment and the goods are considered to
be essence of contract.
S. 55 of the Indian Contract Act deals with the provision of "time is essence of contract"
and also deals with the consequences of failure to perform contract in time.
a) When time is the essence: When time is the essence of contract and the promisor
fails to perform his obligation within the fixed time, the contract (or unperformed part
of the contract) becomes voidable at the option of the promisee. (S. 55, para 1). If it was
not the intention of the parties that time should be of the essence of the contract, the
contract does not become voidable by the failure to do such thing at or before the
specified time; but the promisee is entitled to compensation from the promisor for any
loss occasioned to him by such-failure. (S. 55, para 2).
b) When time is not of the essence: When time is not the essence of the contract
and promisor fails to perform his obligation within the fixed time does not make the
contract voidable, but the promisee is entitled to compensation for any loss caused to
him by such failure. (S. 55, para 2).
LIABILITY TO PAY INTEREST FOR DELAY: UNDER CONTRACT TERMS,
UNDER THE INTEREST ACT 1978
POWER OF COURT TO ALLOW INTEREST.S.3:-
(1) In any proceedings for the recovery of any debt or damages or in any proceedings in
which a claim for interest in respect of any debt or damages already paid is made, the
court may, if it thinks fit, allow interest to the person entitled to the debt or damages or
to the person making such claim, as the case may be, at a rate not exceeding the current
rate of interest, for the whole or part of the following period, that is to say,-
(a)
if the proceedings relate to a debt payable by virtue of a written instrument at a certain
time, then, from the date when the debt is payable to the date of institution of the
proceedings;
(b) if the proceedings do not relate to any such debt, then, from the date mentioned in
this regard in a written notice given by the person entitled or the person making the
claim to the person liable that interest will be claimed, to the date of institution of the
proceedings: Provided that where the amount of the debt or damages has been repaid
before the institution of the proceedings, interest shall not be allowed under this section
for the period after such repayment. ayment.
(2) Where, in any such proceedings as are mentioned in sub-section (1),—
(a) judgment, order or award is given for a sum which, apart from interest on damages,
exceeds four thousand rupees, and
(b) the sum represents or includes damages in respect of personal injuries to the
plaintiff or any other person, or in respect of a person's death, then, the power conferred
by that sub-section shall be exercised so as to include in that sum interest on those
damages or on such part of them as the court considers appropriate for the whole or
part of the period from the date mentioned in the notice to the date of institution of the
proceedings, unless the court is satisfied that there are special reasons why no interest
should be given in respect of those damages.
(3) Nothing in this section,-
(a) shall apply in relation to-
(i) any debt or damages upon which interest is payable as of right, by virtue of any
agreement; or
(ii) any debt or damages upon which payment of interest is barred, by virtue of an
express agreement;
(b) shall affect-
(i) the compensation recoverable for the dishonour of a bill of exchange, promissory
note or cheque, as defined in the Negotiable Instruments Act, 1881; or
(ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil
Procedure, 1908.
(c) shall empower the court to award interest upon interest.
INTEREST PAYABLE UNDER CERTAIN ENACTMENTS. S.4:-
(1) Notwithstanding anything contained in section 3, interest shall be payable in all
cases in which. it is payable by virtue of any enactment or other rule of law or usage
having the force of law.
2) Notwithstanding as aforesaid, and without prejudice to the generality of the
provisions of sub- section (1), the court shall, in each of the following cases, allow
interest from the date specified below to the date of institution of the proceedings at
such rate as the court may consider reasonable, unless the court is satisfied that there
are special reasons why interest should not be allowed, namely:-
(a) where money or other property has been deposited as security for the performance of
an obligation imposed by law or contract, from the date of the deposit;
(b) where the obligation to pay money or restore any property arises by virtue of a
fiduciary relationship, from the date of the cause of action;
(c) where money or other property is obtained or retained by fraud, from the date of the
cause of action;
(d) where the claim is for dower or maintenance, from the date of the cause of action
RECIPROCAL PROMISES, EFFECT OF NON-PERFORMANCE OF ONE OF
RECIPROCAL PROMISES; UNILATERALAND BILATERAL PROMISES:
SECTIONS 51-54 OF ICA
Que. What is reciprocal promises? What are the various rules regarding
performance of reciprocal promises?
1) INTRODUCTION:-
The contracts are made or entered for the purpose of performing, executing the same
and thereby completing the contractual obligation. A valid contract creates rights and
obligations on the parties to the contract, therefore both the parties to the contract to
perform their respective promises under the contract. Performance of the contract
means carrying of those obligations unless it is excused or exempted by any law.
Reciprocal promise means each party gives a promise in return of a promise.
MEANING OF RECIPROCAL PROMISES:-
S. 2(1) of the Indian Contract Act, 1872 defines reciprocal promises as under: "Promises
which form the consideration or part of the consideration for each other, are called
reciprocal promises."
Certain contract consists of mutual consideration. They are executory in nature. Such
contracts are called 'executory contracts'. In such promises, there is a promise against
promise.
Reciprocal promise means each party gives a promise in return of a promise. It is a
promise in return for promise. Thus where a contract consists of promise by one party in
consideration of a similar promise by other party, it will be called as a case of reciprocal
promises.
In commercial transactions, there are reciprocal promises made in contract oftenly, e.g.
A promises to sell one computer to B after 10 days. B promises to pay the price after
receiving a computer. In this contract there are reciprocal promises.
3) KINDS OF RECIPROCAL PROMISES:-
a) Mutual and dependent: In such case the performance of one party depends upon
the prior performance of the other party. Thus one party cannot perform unless the
other party has are performed his promise, e.g. A promises to sell his car to B after one
month and B promises to pay on getting the delivery of the car from A. Here A's promise
has to be performed first and then only B's promise can be performed. Thus B's promise
is depending on A's promise for performance.
b) Mutual and independent : In such case, each party must perform his promise
without waiting for the performance of the party. When the promises are to be
performed by each party independently, without waiting for the other party to perform
his promise, they are called mutual and independent promises. Here the promises do
not depend on each other for their performance and can be independently performed,
e.g. A promises to paint a picture for B and B promises to pay the money on a certain
fixed day. These promises can be independently performed.
c) Mutual and concurrent: In such case, the promises of both the parties are to be
performed simultaneously, e.g. sale of goods on cash basis. A and B contract that A shall
deliver goods to B on 10th October and B promises to pay the price immediately on
delivery. Here A and B to perform simultaneously their promises as decided in the
contract.
4) RULES REGARDING PERORMANCE OF RECIPROCAL PROMISES:- (S.
51 to 54 and S. 57)
a)Reciprocal promises to be performed simultaneously (mutual and
dependent promises) When contract consists of reciprocal promises to be performed
simultaneously, a promisor need not perform his promise unless the promisee is ready
and willing to perform his reciprocal promise.
Example: A and B contract that A shall deliver goods to B to be paid by B on delivery. A
need not deliver the goods, unless B is ready and willing to pay for the goods on delivery.
B need not pay for the goods, unless A is ready and willing to deliver them on payment.
b)Order of performance (S. 52): Where the order of performance is fixed by the
parties expressly fixed by the contract, then parties to perform them in that order i.e. in
the same sequence. If the order is not fixed expressly, then the promises shall be
performed in that order which the nature of transaction requires, e.g. A promises to
paint the picture for B and B promises to pay the price only after completion of the
picture. Here A should perform first and then only B can perform.
c) Effect of preventing performance (S. 53): If one party prevents the other
performing his promise, the contract becomes voidable at the option of the party
prevented and is also entitled to claim compensation from the other party for any loss
which he has sustained due to non- performance of the contract.
d) Effect of default in performance (S. 54): In mutual and dependent reciprocal
promises, if the promisor of first promise failed to performe then he cannot claim the
performance of the reciprocal promise. He is also liable to compensate the loss of the
other party.
In mutual and dependent reciprocal promises, there is a sequence of performance which
is fixed. If promisor of first promise commits a default then he cannot demand the
performance of second promise, e.g. A promises to supply raw material to B and B
promises to construct house for A. Here A should perform first. A commits a default
then B cannot perform and B can claim compensation from A for any loss caused to him
due to breach of contract by A.
e) Reciprocal promises to do thing legal, and also other illegal things (S. 57):
Where the toon persons reciprocally promise to do certain things legal and under
certain circumstances to do certain thing illegal, then the first set of promises is a
contract, for the second set of promises ofis a void agreement e.g. A and B agrees that A
shall sell B house for Rs. 10000/- but that, if B uses it as gambling house, he shall pay
Rs.50000/- for it.
The first set of reciprocal promises i.e. to sell the house and to pay Rs. 10000/- for it is
the valid contract whereas the second set is for unlawful object i.e. use the house as
gambling house, is a void agreement.
f)Alternative promise, one branch being illegal (S. 58): In the case of
alternative promise, tone branch of which is legal and the other illegal, the legal branch
alone can be enforced. e.g. A and B agree that A shall pay be Rs. 1000/- for which B shall
afterwards deliver to A either rice or smuggled opium. To deliver rice is a valid contract
and to deliver opium is a void agreement.