CONTRACT

Definition of a Contract

Accordding to Section 2.(h) of the Indian Contract Act “ An agreement enforceable by law is a
contract”

Sir William Anson defines a contract as a “ a legally binding agreement between two or more
persons by which rights are acquired by one or more to acts or forbearance on the part of the
other or others”

By one definition a contract is "a promise or a set of promises for the breach of which the law
gives a remedy, or the performance of which the law in some way recognizes as a duty;
Contracts arise out of agreements; hence a contract may be defined as an agreement creating an
obligation.

Essential elements of a valid contract ( IMPORTANT)

1. Offer and acceptance:

In a contract there must be at least two parties one of them making the offer and the other
accepting it. There must thus be an offer by one party and its acceptance by the other. The offer
when accepted becomes agreement.

There must be a „lawful offer‟ and a „lawful acceptance‟ of the offer, thus resulting in an
agreement. The adjective „lawful‟ implies that the offer and acceptance must satisfy the
requirements of the Contract Act in relation thereto.

EXAMPLE: A offers to sell his cycle for 5000 Rs. This is an offer, if B accepts the offer there is
an acceptance.

2. Intention to create legal relationship:

Parties to a contract must intend to constitute legal relationship. It arises when the parties know
that if any one of them fails to fulfil his part of the promise, he would be liable for the failure of
the contract. If there is no intention to create legal relationship, there is no contract between
parties. Agreements of a social or domestic nature which do not contemplate a legal relationship
are not contracts.

An agreement to dine at a friend‟s house is not an agreement intended to create legal relations
and therefore is not a contract. Agreements between husband and wife also lack the intention to
create legal relationship and thus do not result in contracts.

Example: M promises his wife N to get her a saree if she will sing a song. N sang the song but
M did not bring the saree for her. N cannot bring an action in a Court to enforce the agreement as
it lacked the intention to create legal relations.
3. Capacity of parties:
The parties to an agreement must be competent to contract. In other words, they must be capable
of entering into a contract. According to Sec 11 of the Act, “Every person is competent to
contract who is of the age of majority according to the law to which he is subject to and who is
of sound mind and is not disqualified from contracting by any law to which he is subject.”

Thus, according to Section 11, every person with the exception of the following is competent to
enter into a contract:-

(i) A minor, (ii) A person of unsound mind, and

(iii) A person declared disqualified to enter into a contract under any Law.

4. Free consent:
Another essential of a valid contract is the consent of parties, which should be free. Under Sec.
13, “Two or more parties are said to consent, when they agree upon the same thing in the same
sense.” Under Sec. 14, the consent is said to be free, when it is not induced by any of the
following:- (i) coercion, (ii) misrepresentation, (iii) fraud, (iv) undue influence, or (v) mistake.

The other party (i. e., the aggrieved party) can either reject the contract or accept it, subject to the
rules laid down in the Act. If the agreement is induced by mutual mistake which is material to
the agreement, it would be void (Sec. 20).

Example: A forced B at gun point to enter into contract is not valid.

5. Lawful consideration:
Consideration is known as „something in return‟. It is also essential for the validity of a contract.
A promise to do something or to give something without anything in return would not be
enforceable at law and, therefore, would not be valid.

Consideration need not be in cash or in kind. A contract without consideration is a „wagering

contract‟ or „betting‟. Besides, the consideration must also be lawful.

Example: A promises to sell his car to B for 1 lakh Rs. Fro A 1 lakh Rs. Is consideration and for
B car is the consideration.

6. Lawful objects:
According to Sec. 10, an agreement may become a valid-contract only, if it is for a lawful
consideration and lawful object. Thus, any agreement, if it is illegal, immoral, or against the
public policy, cannot become a valid contract.

Example: A hires a house to use it for gambling. The object of agreement is illegal and void.

7. Agreement not expressly declared void:

An agreement to become a contract should not be an agreement which has been expressly
declared void by any law in the country, as it would not be enforceable at law.
8. Certainty:
Agreements to form valid contracts must be certain, possible and they should not be uncertain,
vague or impossible. An agreement to do something impossible is void under Sec. 56.

Illustration:
A agrees to sell B “a hundred tons of oil.” There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.

9. Possibility of performance:
Yet another essential feature of a valid contract is that it must be capable of performance. Section
56 lays down that “An agreement to do an act impossible in itself is void”. If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration:
A, agrees with B to discover treasure by magic. The agreement is not enforceable.

10. Legal formalities:

The agreement may be oral or in writing. When the agreement is in writing it must comply with
all legal formalities as to attestation, registration. If the agreement does not comply with the
necessary legal formalities, it cannot be enforced by law.
Classifications or Types or Kinds of Contracts

There are mainly 3 classifications of contracts

A) Classification on the basis of enforceability

B) Classification on the basis of Formation

C) Classifications on the basis of performance

A) Classification on the basis of enforceability

1) Valid contract. 2) Void contract. 3) Voidable contract

4) Unenforceable contact. 5) Illegal contract.

1. Valid Contract - section 2(h) and 10 )

A contract is said to be valid if it can be enforceable in the court of law. According to section
2(h) of Indian Contract Act 1872 , "an agreement enforceable by law is a contract therefore to
constitute contract " . Therefore to constitute a Contract -

A) There must exist an agreement. and

B) The agreement should be enforceable by law.

A contract to be enforceable, it must contain the constituents enshrined in Section 10 of the

Indian Contract Act 1872. According to Section 10 of the Act, a contract it said to be valid, if
two or more competent parties freely consented to enter into an agreement not declared void
with a lawful object for a lawful consideration .

2 .Void Contract (Sec 2(g))

"A Contract which is not enforceable by law is said to be vo id contract" . Void contract is an
agreement without any legal effect and is void ab initio or it becomes void subsequently.
According to Section 2(G) of the Indian Contract Act 1872. "An agreement not enforceable by
law is said to be void".
Eg... Contract with a minor.

The privy council in MohriBibi Vs Dharmadas Ghose, (1903 30 IA Cal. 539) laid down that, "a
contract entered into with a minor is void ab initio for example not enforceable.
Sections 24-30 of the Act deals with void agreements.
Illustrations

1) A promises B to drop a prosecution which he has instituted against B for robbery and B
promises to restore the value of things taken. The agreement is void as its object is unlawful.
Example: there is a Contract between X and Y where Y is a minor who has no capacity to
contract. It is Void Contract.

3 .Voidable contract (Section 2(I)

Voidable contract is something different and peculiar. One of the parties to the contract alone
with have an option to repudiate / challenge / cancel the contract. If it is challenged, it may be
declared void. If it is not changed it may be allowed to constitute as valid .
Section 2(i) defines voidable contract as " An agreeme nt which is enforceable by law at the
option of one or more of the parties thereto, but not at the option of the other or others, is a
voidable contract."

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 misrepresentation made had been true.

4) Unenforceable contract...

An Unenforceable contract is a contract, which is valid for all practical purposes until and unless
its validity is challenged/ questioned. It cannot be enforced due to some Technical defect. It can
be enforced in future after the technical defect is removed. When a contract remains
unenforceable for want of registration, it becomes enforceable in future after
registration.

Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be written
actually on Rs. 100/- stamp. It is unenforceable contract.

5) Illegal Contract -

An illegal contract is one which is immoral or against law. An illegal contract is void and also
crime under section 120-(A) ( criminal conspiracy) of the Indian Penal Code . It is not only void
but also an offence . However every void contract is not illegal.

Example -
A and B enter into an agreement to commit an illegal act ( e.g to carry on some bus iness or to
undertake some work Forbidden by law) or a legal act by illegal means ( for example...
admission into Engineering/ medicine ignoring/ violating the rules/ merit) .

Example: There is a contract between X and Z according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal contract.
B) Classification on the basis of Formation

1) Express Contracts: Where the terms of the contract are expressly agreed by words, spoken or
written, it is an express contract. The Contracts where there is expression or conversation are
called Express Contracts.
For example: A has offered to sell his house and B has given acceptance. It is Express Contract.

2) Implied Contract: Where the offer or acceptance of any promise is made otherwise than in
words, the promise is said to be implied ( sec 9) The Contracts where there is no expression are
called implied contracts. Sitting in a Bus can be taken as example to implied contract between
passenger and owner of the bus.

3) Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so, Actually
there will be no Contractual relations between the partners. Such a Contract which is created by
Virtue of law is called Quasi Contract.
Quasi contract is created by law, which imposes an obligation on a party who is required to
perform it.
For example, the obligation of a finder of lost goods to return them to the true owner

C) CLASSIFICATIONS ON THE BASIS OF PERFORMANCE:

1.EXECUTED CONTRACT

It is one in which both the parties to the contract have performed their obligation.
For example, when a merchant sells goods for cash and receives cash from the buyer, it is an
executed contract because both the parties have done their part of obligation.

2.EXECUTORY CONTRACT
An executory contract is one in which both the parties to the contract have not yet perdormed
their obligations. Thus the performance remains outstanding.
Example: X a teacher agrees to give tuition to the son of Y from first day of next month, and Y
agrees to pay Rs 250 to the teacher, the contract is executory because it is yet to be carried out.
 OFFER

According to Section 2(A) of the Indian Contracts Act, 1872, When a person expresses his
willingness to another person to do or to abstain from doing something and also obtain the
consent of such expression, it is called an offer. The person who makes an offer is called
“Offerer” or “ Promiser” and the person to whom the offer is made is called the “Offeree” or
“Promisee”.

Illustration- Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr.
A is making an offer to Mr. B. Here A is the offeror and B is the offeree.

Essentials of a valid offe r

(1) The offer must be Communicated :

Communication or expression of the willingness by the offerer to enter into a contract or abstain
from doing so is essential for a valid offer. Mere desire or willingness to do or not to do
something is not enough and will not constitute for an offer. Communication of offer is the most
primary thing which is to be done for a valid offer. The offeror must communicate offer to the
offeree. The communication can be either in oral or written form. The offer can directly
communicate to the person specific to whom it is offered or it can be in general in nature.

For example : “A” wants to sell his car and he has published an advertisement in newspaper
which is a form to communicate the offer to general public. Hence it is a valid offer. In Lalman
Shukla vs Gauri Dutt(1913) it was held that mere knowledge of an offer does not imply
acceptance by the offeree.

(2)Te rms of the offer must be clear and definite : Knowledge of the Intention of the parties is
very essential as without this the courts will not be able to decide what the parties want to do.
Therefore the terms of the offer must be clear and definite and not vague and loose.Offer must be
certain as specified in [Section 29], it must be unambiguous means that the thing offered must
clearly specified.

For example : Mitesh offered to sell his car to Tanmay. Mitesh is owned two cars one is of Ford
& other is of BMW and Mitesh offered his Ford car to Tanmay b ut Tanmay thought Mitesh if
offering him his BMW one. As in the offer it was not definite which car Mitesh wants to sell,
thus this is not a valid offer.
Example-Ram offers Shyam to sell fruits worth Rs 600/-. This is not a valid offer since what
kinds of fruits or their specific quantities are not mentioned.

(3)Must create a legal relationship

It is essential for a valid proposal that it must be made with the intention of creating a legal
relationship otherwise it will only be an invitation. A social invitation may not create a social
relationship. An offer must lead to a contract which creates legal obligations and legal
consequences in the case of non-performance of the contract. A valid offer creates a legal
relationship which means there must be an intention of the offeror to work under legal obligation
or to be legally bounded by law not under social obligation.

For example : “X” (Father of Y) says to “Y”, if he pass the exam he will get a new video game.
“Y” passed the exam asked his father to give him video game as he had promised to Y. Here X is
not legally bound as the offer doesn‟t create any legal obligation against X.

In case of Balfour v. Balfour [2]. They were married couple. Husband promised to his wife to
send £30 per month. But husband failed to do so. Then wife filed the case against him and it was
held that there was no intention to create legal relation. Thus the agreement was not valid.

Example- A lunch invitation extended by A to B is not a valid offer.

Ways in which an offer can be communicated

(1) By words (whether written or oral) The written offer can be made by letters, telegrams, E-
mail, advertisements, etc. The oral offer can be made either in person or over the telephone.

(2) By conduct : The offer may be communicated by making positive acts or signs to the offeree.
However, the silence of a party does not amount to an offer.

Example– When you board a taxi, you are accepting to pay the taxi fare via your conduct.
5. It may be general or specific in nature:- An offer may be made to a definite person or a
definite class of persons, such an offer is specific offer. The offer can be given to public at large
in general by advertisement in newspaper etc. is known as general offer

6. Offer must be made with a view to obtain the assent :- The offeror must obtain consent
which should be “free” in nature as define under Section 14 as it define it should not be taken
under coercion [section 15], undue influence [Section 16], fraud [Section 17], misrepresentation
[Section 18] & Mistake [Section 20, 21 and 22].

8. It may be subject to any te rms & conditions:

An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the
mode of acceptance. There is no contract, unless all the terms of the offer are accepted in the
mode prescribed by the offeror. It must be noted that if the offeror asks for sending the
acceptance by telegram and the offeree sends the acceptance by letter, and the offeror may reject
such acceptance.

Example:
A asks B to send the reply of his offer by telegram but B sends reply by letter, A may reject such
acceptance because it is opposed to the prescribed mode of communication.

9. It must not contain cross offers:

When two parties make similar offers to each other, in ignorance of each other‟s such offers are
called cross-offers. The acceptance of cross-offers does not result in complete agreement.

Example:
On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 per ton. On the same
day, B wrote to A to buy 100 tons of iron at Rs.10,000 per ton. There is no contract between A &
B because the offers wee similar and made in ignorance of the other and so there is no
acceptance of each other‟s offer.

Difference between offer and an invitation to offer

An offer is defined in section 2 (a) of the Indian Contract Act, 1872. Conversely, an invitation to
offer is not defined in the Indian Contract Act, 1872.
The major difference between the two is that the purpose of an offer is to enter into a contract
whereas the purpose of an invitation to offer is to receive an offer in order to enter into a
contract.

Illustration- A sees an article marked Rs 50 in B‟s shop. He tells B he will buy it and offers him
Rs 50.B says that he doesn‟t wish to sell that article.

In this case, there is no contract at all and the price tag is not an offer but an invitation to offer. It
is on the discretion of the shopkeeper if he wants to sell his article or not.

Therefore an offer is the final willingness of the party to create legal relations. An invitation to
offer is not the final willingness but the interest of the party to invite the public to offer him.

Different Types Of Offers

1. GENERAL OFFER:- When an offer made at large or in public or in general this offer is
known as General Offer. It can be accepted by any individual or public at large whoever is
interested in the offer offered. When a person accepts the offer given then offeror and offeree
enter into contract. The reward will be given to that person who completed the task given or
fulfilled the given condition.

CASE : CARLILL v. CARBOLIC SMOKE BALLS CO. (1893) [3] This is the landmark
judgment of general offer. In this case it held by the Court of Appeal that whosoever fulfills the
terms and condition of the offer will be eligible for the reward of the offer.

2. SPECIFIC OFFER :- The offer which is made to an individual or to a specific group of

individual is said to be Specific offer. It can be accepted by that individuals or that group of
individual.

Example : Sandhya offer to buy a car from Sona for Rs. 10 lakh. Thus, a specific offer is made to
a specific person , and only Sona can accept the offer.
3. COUNTER OFFER :- When an offeror makes an offer to offeree and offeree with some
modification in it makes converse offer which makes initial offer void and the other comes in
existence, which reverse the party from offeror and offeree to offeree and offeror respectively
this type of offer is known as counter offer.

CASE : HYDE v.WRENCH (1840) [4] : Defendant(offeror) offered to sell his farm for £1000
but the Plaintiff(offeree) offered him £950 and subsequently rejected the offer. So, the offeree
filed the case as the offeror was bind by the contract but it was held that as soon as offe ree put
the condition the first offer becomes void which means that the offeror is not bounded by the
contract as the original offer was rejected by the offeree.

4. CROSS OFFER :- When the offeror and offeree make the same offer to one another having
same terms out of knowledge of each other is known as cross offer. In this case there will be no
contract due to acceptance of the offer offered.

CASE : TINN v. HOFFMAN (1873) [5] In this case Hoffman wrote a letter to Tinn with a offer
to sell 800 tons of iron for the price of 69s per ton. On the same day without any knowledge
Tinn wrote a letter to buy the iron with the price and with same condition as written by Hoffman.
It was held by the court that it was cross offer and no contract exist & no parties are bound by the
contract.

5. IMPLIED OFFER :- When an offer is given by body posture, gesture or by action or by

the conduct of the offeror is known as implied offer. The offeree can accept the offer by
understanding the action of the offeror.

6. EXPRESSED OFFER :- When an offer is express in written or in verbal form then this
offer is known as expressed offer. For example : “C” writes a letter to “D” to buy his earphone
for Rs.500. This is an expressed offer.

7. STANDING OFFER :- When tender is submitted to supply certain goods or any quantity
as and when required it will amount to standing offer. In such a case contract does not come into
existence merely when tender is accepted, but a contract takes place only after the order is
placed. Each order in such a case is acceptance and as soon as the offer is accepted the contract
comes into existence.
Lapse or Revocation of offer

An offer comes to an end, and is no longer open to acceptance under the following
circumstances:

1) By Notice

By giving the notice of revocation to the other party, the offeror can withdraw the offer, and the
offer comes to an end. But the fact is that an offer may be revoked any time before the
acceptance but not afterwards. Because once the offer is accepted there is a binding contract.

Suppose a proposal is sent by Sonali to Julia and is accepted by Julia by letter. However, the
proposal might have been revoked any time before the letter of acceptance was posted but it can
not be revoked after is posted.

The notice of revocation does not take effect until it comes within the k nowledge of the offeree.

2) By Lapse of Time

When the proposer prescribes a time within which the proposal must be accepted, the proposal
lapses as soon as the time expires.

3) After expiry of reasonable time

If no time has been prescribed, the proposal lapses after the expiry of a reasonable time. What is
reasonable t

ime will depend on the circumstances of the cases.

4) By Failure of a Condition Precedent

An offer lapses by the failure of the acceptor to fulfil a condition precedent to acceptance, where
such a condition has been prescribed.

Example: Mr. Cotler says to Rabi, “I‟ll sell my house at Banani, Dhaka to you for BDT. 2 crores
if you are married.” The offer cannot be accepted until and unless Rabi is married.

5) By Death or Insanity :An offer lapses 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.

6) Counter Offe r :When the counter offer is given, then the original offer lapse.

7) By Refusal : A proposal once refused is dead and connot be revived by its subsequently
acceptance.
 ACCEPTANCE

Definition of Acceptance

The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the
proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the
proposal when accepted becomes a promise.”

So as the definition states, when the offeree to whom the proposal is made, unconditionally accepts
the offer it will amount to acceptance. After such an offer is accepted the offer becomes a promise.

Say for example A offers to buy B‟s car for rupees two lacs and B accepts such an offer. Now, this
has become a promise.

When the proposal is accepted and it becomes a proposal it also becomes irrevocable. An offer does
not create any legal obligations, but after the offer is accepted it becomes a promise. And a promise
is irrevocable because it creates legal obligations between parties. An offer can be revoked before it
is accepted. But once acceptance is communicated it cannot be revoked or withdrawn.

Example -Anita offers to buy Priya‟s car for Rs.10 lakhs and Priya accepts such an offer. Now,
this has become a promise.

Essentials of a valid acceptance

Section 7 of The Indian Contract Act,1872 lays down two essentials of a valid acceptance.

1] Acceptance can only be given to whom the offer was made

In the case of a specific proposal or offer, it can only be accepted by the person it was made to. No
third person without the knowledge of the offeree can accept the offer.

Let us take the example of the case study of Boulton v. Jones. Boulton bought
Brocklehurst‟s business but Brocklehurst did not inform all his creditors about the same. Jones, a
creditor of Brocklehurst placed an order with him. Boulton accepted and supplied the goods. Jones
refused to pay since he had debts to settle with Brocklehurst. It was held that since the offer was
never made to Boulton, he cannot accept the offer and there is no contract. When the proposal is a
general offer, then anyone with knowledge of the offer can accept it.

2] It has to be absolute and unqualified

Acceptance must be unconditional and absolute. There cannot be conditional acceptance, that would
amount to a counteroffer which nullifies the original offer. Let us see an example. A offers to sell
his cycle to B for 2000/-. B says he accepts if A will sell it for 1500/-. This does not amount to the
offer being accepted, it will count as a counteroffer.

Also, it must be expressed in a prescribed manner. If no such prescribed manner is described then it
must be expressed in the normal and reasonable manner, i.e. as it would be in the normal course of
business. Implied acceptance can also be given through some conduct, act, etc. However,
the law does not allow silence to be a form of acceptance. So the offeror cannot say if no answer is
received the offer will be deemed as accepted.

3] Acceptance must be communicated

For a proposal to become a contract, the acceptance of such a proposal must be communicated to
the promisor. The communication must occur in the prescribed form, or any such form in the
normal course of business if no specific form has been prescribed. Further, when the offeree accepts
the proposal, he must have known that an offer was made. He cannot communicate acceptance
without knowledge of the offer.

So when A offers to supply B with goods, and B is agreeable to all the terms. He writes a letter to
accept the offer but forgets to post the letter. So since the acceptance is not communicated, it is not
valid.

4] It must be in the prescribed mode

Acceptance of the offer must be in the prescribed manner that is demanded by the offeror. If no such
manner is prescribed, it must be in a reasonable manner that would be employed in the normal
course of business. But if the offeror does not insist on the manner after the offer has been accepted
in another manner, it will be presumed he has consented to such acceptance.

So A offers to sell his farm to B for ten lakhs. He asks B to communicate his answer via post. B e-
mails A accepting his offer. Now A can ask B to send the answer through the prescribed manner.
But if A fails to do so, it means he has accepted the acceptance of B and a promise is made.
5] Implied Acceptance

Section 8 of the Indian Contract Act 1872, provides that acceptance by conduct or actions of the
promisee is acceptable. So if a person performs certain actions that communicate that he has
accepted the offer, such implied acceptance is permissible. So if A agrees to buy from B 100 bales
of hay for 1000/- and B sends over the goods, his actions will imply he has accepted the offer.

6) The acceptance cannot be presumed from silence:

Sometimes, the acceptor does not convey his decision to the offer or/and keeps silent. In such a
case, his silence does not amount to acceptance. Similarly, the offeror does not have the legal
rights to say that if no answer is received within a certain time, the offer shall be deemed to have
been accepted.

He (the offeror) cannot impose a condition that offeree‟s silence will be regarded as equivalent to
acceptance.

7. The acceptance must be given within the time prescribed or within a reasonable time:
Sometimes, the time limit is fixed within which an acceptance is to be given. In such cases, the
acceptance must be given within the fixed time limit. In case, no time is prescribed, the
acceptance should be given within a reasonable time. The term „reasonable time‟ depends upon
the facts and circumstances of each case.

8. The acceptance must be given before the lapse of offer:

A valid contract can arise only when the acceptance is given before the offer has elapsed or
withdrawn. An acceptance which is made after the withdrawal of the offer is invalid, and does
not create any legal relationship.

Conclusion

Offer and acceptance analysis is a traditional approach in contract law used to determine whether
an agreement exists between two parties. An offer is an indication by one person to another of
their willingness to contract on certain terms without further negotiations. A contract is then
formed if there is an express or implied agreement. A contract is said to come into existence
when acceptance of an offer has been communicated to the offeror by the offeree.

The communication of an offer is complete when it comes to the knowledge of the person to
whom the offer is made and the communication of an acceptance is complete when the
acceptance is put in a course of transmission to the offerer. Therefore, Offer and acceptance is
the essential elements of a contract and in either case, it should be done out of one‟s free will and
with an intention to enter into a legally binding agreement.
 CONSIDERATION

According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as follows:
“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 abstain from doing something, such act
or abstinence is called a consideration for the promisee.”

This is a complex sentence. Let‟s break it down for further understanding and rewrite it as follows:

At the desire of the promisor if the promisee either

 Does something (in the past, present or future) OR

 Abstains from doing something (in the past, present or future)

Then, this act of doing or abstinence is called Consideration. Now, it has two aspects, either doing
some act or abstaining from doing something. Let‟s look at some examples:

Example 1 – Doing something Peter and John enter into a contract where Peter promises to
deliver 15 curtains to John in one month‟s time. Also, John promises to pay Peter an amount of Rs
3,000 on delivery. In this contract, John‟s promise to pay Rs 3,000, on delivery, is the consideration
for Peter‟s promise. Also, Peter‟s promise of delivering 15 curtains is the consideration of John‟s
promise to pay.

Example 2 – Not doing something Peter has taken a loan from his friend John. However, he
has not repaid the loan yet. John promises not to file a suit against Peter if he promises to
repay the loan within a week. In this case, abstinence on the part of John is due to the
consideration of Peter’s promise of repayment of the loan.

Consideration is some thing of value promised by one party to another while entering into a
contract. The first and most important thing to be considered while making a contract is that the
consideration must be passed on with the willingness of the promisor. Consideration should
contain payment of money, some act, abstinence or promise. For a consideration to be valid
there must be a promise from both sides. This means that there must be a promise by one party
against the promise of the other party. If a person agrees to sell his house to another person for
$150,000 and the other person is willing to pay for the house there is consideration from both the
parties. Consideration can be in the form of money, services, physical object or even actions or
abstinence from an action.
The essentials or legal rules of a valid consideration are as under:-

ESSENTIALS OF A VALID CONSIDERATION

1. It must move at the desire of the promisor:
In order to constitute legal consideration the act or abstinence forming the consideration for the
promise must be done at the desire or request of the promisor. ( Durga Prasad vs. Baldeo )

Example : A saves B‟s house from the fire without being asked to do so. A cannot demand
payment for his services because A performed this act voluntarily and not at the desire of B.

2. It may move from the Promisee or any other person:

The second essential of a valid consideration is that consideration may move from the promisee
or from a third person on his behalf. In other words the act which is to constitute consideration
may be done by the promise or any other person.

Example: A, an old lady, gifted her property to her daughter R on the condition that she should
pay certain amount annually to A‟s brother C. On the same day R, entered into an agreement
with her Uncle C to pay the amount. Afterwards she refused to fulfill her promise. C filed a suit.
It was held that C was entitled to recover the amo0unt as the consideration on his behalf had
moved from her sister A.

3. It may be past, present or future:

It is clear from the definition of consideration that it may be past present or future. It means that
the consideration is an act, which has already been done at the desire of the promisor, or in
progress or is promised to be done in future.

A) Past Consideration:
When the consideration for a present promise was given before the date of the promise it is
called a past consideration. It is not a valid consideration.
Example: A teaches the son of B at B‟s request in the month of January and in February B
promises to pay A sum of Rs.2,000 for his services. The services of A will be past consideration.

B) Present Consideration:
When consideration is given simultaneously by one party to another at the time of contract, it is
called Present Consideration. The act constituting the consideration is wholly or completely
performed.
Example:A sells a book to B and B pay its price immediately it is a case of present consideration.

C) Future Consideration:
When the consideration on both sides is to be given at a future date, it s called future
consideration or executory consideration. It consists of promises and each promise is a
consideration for the other.

Example:
X promises to deliver certain goods to Y for Rs.1500 after a week upon Y‟s promise to pay the
agreed price at the time of delivery. The promise of X is supported by promise of Y and the
consideration is executory on both sides.

4. It need not be Adequate:

It is not necessary that consideration should be adequate to the value of the promise. The law
only insists on the presence of consideration and not on its adequacy. It is for the parties to the
contract to consider the adequacy of consideration and the courts are not concerned about it.
Example: A agrees to sell his car worth Rs.200,000 for Rs.50,000 only and his consent is free.
The agreement is valid contract.

5. It must be Real:
It is necessary that consideration must be real and competent. Where consideration is physically
impossible illegal uncertain or unreal it is not real and therefore shall not be a valid
consideration.

A) Physically Impossible:
A promise to do something which is physically impossible.
Example: A, promise to put life in B‟s dead brother on B‟s promise to pay him Rs.1 Lac.

B) Legally Impossible:
A promise to do something which is illegal.
Example: A promise to pay Rs.1 Lac to B on his promise to beat C.

C) Unce rtain Conside ration:

A promise to do something, which is too unclear and uncertain.
Example: A employs B for a certain work and B promises to pay A

6. Consideration must be something which the promisor is not already bound to do:
It is because the performance of a pre-existing obligation is no consideration.

However, the following are good considerations to a contract:-

(i) Forbearance to sue,

(ii) Compromise of disputed claims, and

7. Consideration must be lawful:

The consideration to a promise must be lawful. If the consideration is unlawful, the courts do not
allow an action on the contract. The consideration to an agreement is unlawful, if:-

(i) It is forbidden by law; or

(ii) It is of such a nature that, if permitted, it would defeat the provisions of any law; or
(iii) It is fraudulent; or

(iv) It involves or implies injury to a person or property of another; or

(v) The court regards it as immoral or opposed to public policy every agreement of which the
consideration is unlawful is void.

Stranger to a contract

It is a general principle that the contract can be enforced only at the behest of the parties to the
contract. No third party could enforce it. It arises from the contractual relationship between the
two parties. However, Lord Dennings has criticised this rule a number of times as this rule has
never benefited the third party whose roots go deeper in the contract. This rule has two
consequences-

 No third party could enforce the contract.

 The contract between the parties cannot levy an obligation on any person other than
those party to a contract.

Exception

There are three exceptions to this rule:

 Marriage settlements- When an agreement is made with regards to marriage,

family settlement or partition and is made in such a way that it benefits another
person who is not a party to the contract then he may sue for the enforcement of the
contract.

 Covenants running with the land- in cases of the contract of property the
purchaser will be bound by all the conditions and covenants of the land, even though
he was not a party to the original contract.
 Acknowledge ment of estoppels- in case the terms of the contract require that an
agreement has to be made with the third party, then this has to be acknowledged.
This acknowledgement could be expressed or implied. This exception covers the
areas where the promisor either expressly or by conduct has posed himself to be an
agent.

 Capacity to Contract

One of the most essential elements of a valid contract is the competence of the parties to make
a contract. Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person
to be dependent on three aspects; attaining the age of majority, being of sound mind, and not
disqualified from entering into a contract by any law that he is subject to.

So, we have three main aspects:

1. Attaining the age of majority

2. Being of sound mind

3. Not disqualified from entering into a contract by any law that he is subject to

Thus section 11 declares that the following persons are incompetent to contract

1) Minors 2)Persons of unsound mind

3) Persons disqualified by any law to which they are subject

1) MINOR

According to sec 3. Of the Indian Majority act 1875, a minor is a person who has not completed 18
years of age. According to the Indian Majority Act, 1875, the age of majority in India is defined as
18 years. For the purpose of entering into a contract, even a day less than this age disqualifies the
person from being a party to the contract. Any person, domiciled in India, who has not attained the
age of 18 years is termed as a minor.
Let‟s look at certain laws governing a minor‟s agreement:

 A Contract made with a Minor is Void

Since any person less than 18 years of age does not have the capacity to contract, any agreement
made with a minor is void ab-initio (from the beginning).

Example, Peter is 17 years and 6 months old. He needs some money to go on vacation with
his friends. He approached a moneylender and borrows Rs 25,000. As security, he signs some
papers mortgaging his laptop and motorcycle. Six months later, when he attains the age of majority,
he files a suit declaring that the mortgage executed by him when he was a minor is void and should
be cancelled. The Court agrees and relieves Peter of all liability to repay the loan.

 No ratification : if a minor enters into a contract, then he cannot ratify it even after he
attains majority since the contract is void ab-initio. And, a void agreement cannot be
ratified. ( Arumugam chetti vs. Duraisingh tevar )

 A Minor can be a Beneficiary of a Contract

While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of the Indian
Partnership Act, 1932, also specifies that while a minor cannot become a partner in the partnership
firm, the benefits of the firm can be extended to him.
Example: Peter lends some money to his neighbour, John and asks him to mortgage his house as
security. John agrees and the mortgage deed is made favouring Peter’s 10-year-old son – Oliver.
John fails to repay the loan and Peter, as the natural guardian of Oliver, files a suit against John to
recover his money. The Court holds the case since a minor can be a beneficiary of a contract.

 A Minor is always given the Benefit of being a Minor

Even if a minor falsely represents himself as a major and takes a loan or enters into a contract, he
can plead minority. The rule of estoppel cannot be applied against a minor. He can plea his minority
in defence.

 Contract by Guardian

Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of the
minor. Such a contract, which the guardian enters into, for the benefit of the minor, can also be
enforced by the minor. However, guardians cannot bind a minor by a contract for buying
immovable property. But, a contract entered into by a certified guardian of a minor, appointed by
the Court, with approval from the Court for the sale of a minor‟s property can be enforced.

 Insolvency

A minor cannot be declared insolvent as he cannot avail debts. Also, if some dues are pending from
the properties of the minor and he is not personally liable for the same.

 Joint contract by a Minor and an Adult

In case of a joint contract between an adult and a minor, executed by the guardian on behalf of the
minor, the liability of the contract falls on the adult.

2] Person of Sound Mind

According to Section 12 of the Indian Contract Act, 1872, for the purpose of entering into a
contract, a person is said to be of sound mind if he is capable of understanding the contract and
being able to assess its effects upon his interests. It is important to note that a person who is usually
of an unsound mind, but occasionally of a sound mind, can enter a contract when he is of sound
mind. No person can enter a contract when he is of unsound mind, even if he is so temporarily. A
contract made by a person of an unsound mind is void.

i) Lunatics: A lunatic is a person who is mentally deranged due to some mental strain or other
personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter
into a contract during the period when he is of sound mind. In India a Lunatic's Contract is void.

ii) Idiots : An idiot is a person who has completely lost his mental power. He does not exhibit an
understanding of even ordinary matters. Idiocy is permanent whereas lunacy denotes periodical
insanity with lucid intervals. An agreement of an idiot, like that of a minor and it is void.

iii) Drunken or intoxicated persons : A drunken person who suffer from temporary in capacity
to contract. for example: at the time when he is so drunk that he is incapable of forming a
rational judgment. The position of a drunken person is similar to that of a lunatic.

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract
when he is of sound mind. A person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind.
3] Disqualified Persons

Apart from minors and people with unsound minds, there are other people who cannot enter into a
contract. i.e. do not have the capacity to contract. The reasons for disqualification can include,
political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien
enemy, convicts, insolvents, etc. Persons disqualified by law

1. Alien enemy: A person who is an Indian citizen is called an alien or non-citizen of

the Republic of India. An alien enemy is a person whose country is at war with
India. In India, a contract with an alien enemy is void but a contract with an alien
friend is valid under the Indian Contract Act. No contract can be made with an alien
enemy during the subsistence of war, except with the prior approval of the Indian
Government.

2. Convicts: A convict is a person, who is sentenced by a competent court to the death

sentence or imprisonment. A convicted person cannot enter into a contract while
undergoing sentence. When the period of his sentence is over or he is pardoned, the n
his incompetency is also over.
3. Insolvent: There is no prohibition against a contract by an insolvent after the
insolvency proceedings have commenced but before adjudication. In simple words,
the insolvent is disqualified from entering into a contract until he is discharged by
the court of law.

For example, A executed a sale-deed, but before he could get it registered of the deed took place
during the pendency of the insolvency proceedings. Under these circumstances, the sale-deed
valid and binding on the parties.

4. Foreign sovereigns and diplomats: Foreign sovereigns have some special

privileges. Generally, they cannot be sued unless they, themselves surrender under
the jurisdiction of the Indian court of law. They cannot enter into a contract unless an
Indian citizen obtained a prior sanction of the Government of India, in order to sue
them in the Indian court of law.
5. Corporations: The power of a corporation to make a contract vary according to the
character of the corporation. A company is an artificial person created by law and is
competent to contract. But its power of contract is subject to the limitation which
may be either necessary or express.
 FREE CONSENT

 According to Section 13 of the Indian Contract Act, 1872 consent means when both
parties agree to a thing in the same sense of mind or unison of mind.
 The principle of consensus-ad-idem

Illustration : “A” and “B” are the two parties in a contract. It was seen that there was some crisis
and “A” had put a plan forward to solve it. “B” after being made aware of this fact and analysed
that it was the perfect solution, agreed to it. In this case, both partie s showed their consent.

Elements of free consent

 Consent is considered to be free consent when the following factors are satisfied:
 It should be free from coercion.
 The contract should not be done under the pressure of undue influence.
 The contract should be done without fraud.
 The contract should not be made through misrepresentation.
 The contract should not be made by mistake.

Importance of free consent

 The contract made out of free consent protects the validity and enforceability of an
agreement.
 It provides a protecting shield to the parties from coercion, undue influence,
misrepresentation, fraud, and mistake
 It provides the parties to withstand their autonomous power to frame their running
policy or principle.
 The principle of consensus-ad-idem is followed.

Free consent examples

1. “A” agrees to sell his land to “B”. “A” has 10 lands in different places and he wanted
to sell the land in the west direction but “B” wanted the land in the east part. In this
case, it is seen that there is no meeting of minds and the principle of consensus-ad-
idem is violated. Thus the agreement would be considered void.
2. “A” an old man who stays with “B”, his nephew and he takes care of him. “B”
demanded to get the property of “A” as he was taking care of him and forces him to
sign the papers. In this case, “A” is under undue influence.
 COERCION ( SECTION 15)

 When a person commits or threatens to commit an act which is forbidden under the
Indian Penal Code, or detains an object unlawfully or threatens to do so with the
intention to force a person to enter into a contract, then it is said to be coercion.
 Illustration:

“A” cause “B” to enter into an agreement which is forbidden under the Indian Penal Code. “A”
had done the act when an English ship was on the high seas. The “A” sues “B” for breach of
contract in Mumbai. This agreement was considered to be void as “A” had employed coercion,
though Indian Penal Code was not in force at the place where the act was done.

Effect of coercion

When the agreement made is found to be made out of coercion, then the contract would be
rescinded or cancelled, due to which both parties are released from their obligation to perform
their duties as per the contract.

Burden of proof :

The burden of proof that coercion was used lies on the party who wants to set aside the contract
on the plea of coercion.

Is a threat to commit suicide coercion?

 No, a threat to commit suicide does not amount to coercion.

 In the case of Ammiraju v Seshamma,[2] it was seen that there was a threat by the
husband to commit suicide, and he demanded his wife to release the property. It was
seen that the wife was prejudiced and it can‟t be forbidden by law. So here the threat
to commit suicide by the husband amounts to coercion on the wife.
 But this Section15 of the Indian Contract Act can‟t provide relief in this matter in
mere prejudice that a person is subjected to.
 UNDUE INFLUENCE ( SECTION 16)

 When a contract is made between two parties and one of them is in the position to
dominate the will of the other party and takes unfair advantage of the position, then
the contract is said to be made out of undue influence.

Illustration : “A” an old person appoints “B” as his attendant and “B” is his nephew as well.
“B” demands a share of his property and “A” agrees to pay him. In this situation, “A” is under
the undue influence of “B”.

 The principle of undue influence is based on the doctrine of equity.

Salient features

 Either of the parties should be in a state to dominate over other

 The party who dominates should have taken undue advantage of his position

Parties that can be affected by undue influence

 Real and apparent authority

 Fiduciary relationship
 Parent and child
 Adult child and parent
 Husband and wife
 Lawyer and client
 Doctor and patient
 Trustee and beneficiary
 Creditor and debtor
 Landlord and tenant
 A person whose mental capacity is low
 Religious advisor and disciple
 Police officer and the accused
 Doctor and patient
 Old age
 Tender age

Effect of undue Influence

 When an agreement is caused due to the impact of undue influence, can be

considered void at the opinion of the party whose consent was so caused, according
to Section 19A of the Indian Contract Act.
Burden of proof

 It is required to prove that the person dominating actually took undue advantage of
the person and it should be proved that the person was in such position to dominate.
 Mere transfer of gift from one relative to others would not amount to undue
influence.

A transaction with parda-nashin women

 When a woman can be viewed from the screen or is p laced behind the screen i.e,
veiled is called pardanashin women.
 The protection for pardanashin women is been rooted in the principle of equity and
good conscience.
 Special laws are made for pardanashin women because they are subjected to
ignorance, infirmity, illiteracy, etc and are thus easily influenced.
 The burden of proof should be provided against the person who is transacting with
pardanashin women. He has to prove that the transaction had taken place with the
free will of the women and her decision was taken by her without any enforcement
and she was made aware of the provisions mentioned in the document of transaction.
 The explanation of the whole transaction won‟t be enough to establish the burden of
proof.
 In the case of Tara Kumari v Chandra Mauleshwar Prasad Singh,[3] it was delivered
that the essential to establish the burden of proof is that the party executing them
should be a free agent and the woman should be informed, through what she is going
through.
 In the case of Kuna Dei v Md Abdul Latif[4], it was delivered that showing of the
document to the pardanashin women won‟t be enough to establish the burden of
proof. Thus, he has to show that the women was explained clearly the fac ts in the
document of the transaction.
 FRAUD ( SECTION 17)

 Fraud means an action that includes the false assertion of facts, concealment of facts
and any promise with the intention to deceive a person.
 According to Section 17 of the Indian Contract Act, 1872 when a party contracts
with the other party with the intention to deceive amounts to fraud. The party may
directly make the contract with the other party or it can be done with the help of an
agent even.

Illustration : “A” agrees to sell his horse to “B”. “A” had the knowledge that the horse is of
unsound mind and did not inform it to “B”. “B”, asked “A” if he does not deny the fact then “B”
would consider the horse to be sound and “A” kept silence to it. In this case, mere silence
amounts to the agreement, thus “A” performed a fraudulent act.

Thus, a fraud may include these following acts

 When a party conceals the fact from the other party

 When a party promises to perform an act for the other party but has no real intention
to fulfil the promise.
 The false representation of facts has been made to enter into the contract.
 The omission of any act which is considered to be fraudulent in the eyes of law.

Does silence amount to fraud?

 Mere silence does not amount to fraud. But when there is a duty to speak and silence
is equivalent to speech then it amounts to fraud.
 When two parties made an agreement, the parties are not compelled to disclose every
fact to the other party. It is the duty of the other party to enquire about things rather
than expecting the party to come and disclose the fact.
 When a person keeps silencing on the facts which would deceive the other person,
then the person can be convicted of fraud.
 In the case of Jaswant Rai v Abnash Kaur[5], it was found that the vendor concealed
the fact that the material to be sold was defective. Then it was held that the
disclosure of the facts amounted to fraudulent activity of the vendor.

Effects of fraud

 The contract raised out of fraud is a voidable contract.

 The party deceived has the right to revoke the contract.
 The party is liable to recover the damages due to the fraudulent contract
 MISREPRESENTATION ( SECTION 18)

 Misrepresentation means a false representation of the fact.

 According to Section 18 of the Indian Contract, Act Misrepresentation is the stating
of deceiving information which results in the assertion of the other party into
entering into a contract and subsequently undergoing loss. The information,
however, presented by the guilty party is a result of genuine belief about the matter.
Misrepresentation is said to be committed Firstly when the person deceiving
positively asserts not warranted information to another misleading them somehow.
Secondly, there is a breach of duty which has caused the prejudice of one or another
to be at stake. Lastly, a mistake has been committed by another because of the act or
information of the one misrepresenting them.

EXAMPLE: X says to Y that his land produces 12 quintals of wheat per acre and induces Y to
purchase the land. Y believes it to be true, although he did not have sufficient ground to belief.
Later on it was found that the land could produce only 8 quintals of wheat per acre. This was a
misrepresentation.

Characteristics

 It should be mentioned that the false statement was of material fact and not mere
words.
 When a party makes a misrepresentation to the other party, it should be proved that
at the party believed the fact to be true.
 The party should have misrepresented the facts to induce the other party to enter into
a contract.

Kinds

There are two kinds of misrepresentation

Negligent misrepresentation

 When misrepresentation occurs due to lack of any reasonable ground and

carelessness then it is known to be a negligent misrepresentation.
 Negligent misrepresentation is established only when the representative owed a duty
to the representee to handle carefully.
 A person would be liable only when he had neglected the duty mentioned in
particular.
 The responsibility exists between the two parties even when there is no fiduciary
relationship.
Innocent misrepresentation

 When the representation is based on good grounds to believe and it lacks negligence
and fraudulent intention, then it is said to be an innocent misrepresentation.
 When a person enters into a contract with innocent misrepresentation has the right to
revoke the contract but is not entitled to damages suffered.
 A contract won‟t be void unless reasonable grounds are provided. Proving innocence
in misrepresentation would be enough to establish the fact.

Effect of misrepresentation

When the party who has suffered due to the misrepresentation while entering into a contract, can
opt to cease the contract. There are two remedies provided to the party either to rescind the
contract or claim damages. The claim of damages means that the contract is left intact and the
party is to be subjected to money damages during the suit. Suit for rescission is to cease the
performance of the contract that is to restore the party to the original position.

Difference Between fraud and misrepresentation

 MISTAKE

According to Section 20 of the Indian Contract Act, a contract is declared void when a mistake is
caused by both the parties that bilateral mistake, which violates the essentials to an agreement.

Illustration

“A” made agreement with “B” to sell the goods and the agreement was done. “A” was not aware
of the fact that the goods are perished due to some reason. In this case, the contract would be
void because the basis on which the contract was made does not exist.

Mistake of law

People should have minimum knowledge about the law, they should be aware of the fact that
which act they should restrain from doing and which they are ought to do. And there would be
no remedy provided or excused under the fact of mistake of law in these circumstances.

In the case of Ram Chandra v Ganesh Chandra[7], it was seen that the complainant entered into
an agreement of lease of coal mining with the respondent. As per the agreement, the complainant
made payment in advance to the respondent. But the Privy Council and the decision of the
Calcutta High Court questioned the understanding of the law between the parties. Thus the
complainant refused to continue the contract and sued the respondent for the refund. Taking
precedent of Cooper v Phibbs, it was held that the complainant would be entitled with the refund
paid by him.

Mistake of fact

When there is a bilateral mistake causing a contract void, it is subjected to a mistake of fact and
not to mistake of law. When there is a misunderstanding between the parties or omission of facts
which leads to the mistake, is said to be a mistake of fact.

Bilateral

When both parties commit a mistake in the contract under the mistake of facts, the mistake is
considered as a bilateral mistake. This happens due to the lack of meeting of minds, which is an
essential element to constitute free consent. Thus the contract is made void.
There are two types of bilateral mistake

1. Mutual mistake 2. Common mistake

Illustration : “A” agrees to sell his car to “B”. but it was found that his car was stolen and he was
not aware of the fact while making the agreement. Thus this contract would be considered void.

Bilateral mistake as to the subject matter

Existence of subject matter: When both parties have made an agreement on a subject matter
which does not exist, then the contract would be considered void.

Quality of the subject matter: When both parties have made an agreement on a subject matter
and it is found that the quality differs from the one which was mentioned. But in the case of
bilateral mistake, the contract would be considered void.

Identity of subject matter : When both parties have made an agreement on the identity of a
subject matter and it differs than the contract ceases to be void.

Mistake as to the possibility of performing the contract

Physical impossibility: When an agreement is made and it is found that the subject matter is not
available anymore, then it becomes impossible for the parties to execute their part of the
obligation. This is considered to be a physical impossibility to perform, thus the contract
becomes void.

Illustration : “A” made agreement with “B” to sell the goods and the agreement was done. “A”
was not aware of the fact that the goods are perished due to some reason. In this case, the
contract would be void because the basis on which the contract was made does not exist.

Legal impossibility :When an agreement is done between two countries, but it is seen that war
arises between the countries. Thus the contract between the countries becomes legally impossible
to be carried out.

Illustration : “A” one country enters into a contract with “B” another country to export petroleum
with an agreement for 20 years. But after 10 years it was seen that there was a situation of war
arising, thus all the internal export was stopped. In this case, “A” is legally bound to end the
contract with “B”.
 PERFORMANCE OF CONTRACTS

Performance: performance of a contract means carrying out of promises and obligations

undertaken by the parties according to the terms prescribed in the contract.

OFFER OF PERFORMANCE OR TENDER: When promisor has made a valid offer of

performance to the promisee and offer had not been accepted by the promisee, the promisor is
not responsible for non performance and he does not lose any rights under the contract.
A valid tender of performance is equivalent to performance. It is also known as “attempted
performance” or “tender.”

The following are the essentials or requisites of a valid tender:

1. It must be unconditional. It becomes conditional when it is not in accordance with the terms of
the contract.
Ex: „D‟ a debtor offers to pay to „C‟, his creditor, the amount due to him on the condition that
„C‟ sells to him certain shares at cost. This is not a valid tender.

2. It must be the whole quality contracted for or of the whole obligation. A tender of an
installment when the contract stipulated payment in full is not a valid tender.

3. It must be by a person who is in a position, and is willing to perform the promise.

4. It must be made at the proper time and place. A tender of goods after the business hours or of
goods or money before the de date is not a valid-tender.
Ex: “D” owes “C” Rs.100/- payable on 1st of August with interest. He offers to pay on the 1st of
July the amount with interest up to the 1st of July. It is not a valid tender as it not made at the
appointed time.

5. It must be made to the proper person and also in proper form.

6. It may be made to one of the several joint promises. In such a case it has the same effect as a
tender to all of them.

7. In case of tender of goods, it must give a reasonable opportunity to the promise for inspection
of the goods. A tender of goods at such time when the other party cannot inspect the goods is not
a valid tender.

8. In case of tender of money, the debtor must make a valid tender in legal tender money.
Ex: In India in rupees, us-dollars etc..,
 WHO MUST PERFORM THE CONTRACT

The promise under a contract may be performed by;

a. Promisor himself: If there is something in the contract to show that it was the intention of the
parties that the promise should be performed by the promisor himself, such promise must be
performed by promisor himself. This means contracts which involve the exercise of personal
skill or diligence or which are founded on personal confidence between the parties must be
performed by promisor himself.
EX: A contract to paint a picture or to sing or to marry.

b. Agent: Where personal consideration is not the foundation of the contract, the promisor or his
representative may employ a competent person to perform it.

EX: „A‟ promises to pay „B‟ a sum of money; „A‟ may perform the promise, either by personally
paying the money to „B‟ or by causing (making)it to be paid to „B‟ by another.

c. Legal Representatives: A contract which involves the use of personal skill or is founded on
personal considerations comes to an end on death of the promisor. As regards any other contract,
the legal representatives of the deceased promisor are bound to perform it unless a contrary
intention appears from the contract. But their liability under a contract is limited to the value of
property they inherit from the deceased.

EX: „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 Rs 1000/- to A‟s representative.

d. Third person: When a promisee accepts the performance of the promise from third person, he
cannot afterwards enforce it against the promisor.

e. Joint promisors: When two or more persons have made a joint promise, then unless a
contrary intention appears from the contract, all such persons must jointly fulfill the promise, if
any of them dies, his legal representatives must jointly with the surviving promisor have to fulfill
the promise. If all of them die, the legal representatives of all of them must fulfill the promise
jointly.
As per section 67,”If any promisee neglects or refuses to afford reasonable facilities for
performance of the promise to promisor, the promisor is excused for non performance.”
Law relating to the rights and liabilities of JOINT PROMISORS in a contract
OR explain the devolution of joint liabilities OR By whom joint promises must be
performe d?

MEANING: When two or more persons have made a joint promise, they are known as joint
promisors. Unless a contrary intention appears from the contract, all joint promisors must jointly
fulfillthe promise. If any of them dies, his legal representatives must, jointly with the surviving
promisors, fulfill the promise. If all of them die, the legal representative of all o f them must
fulfill the promise jointly.

1. All promisors must jointly fulfill the promise: According to section 42, when two or more
persons have made a joint promise, then unless a contrary intention appears by the contract, all
joint promises must jointly fulfill the promise. If any of them dies, his legal representatives must,
jointly with the surviving promisors, fulfill the promise. If all of them die, the legal
representative of all of them must fulfill the promise jointly.

2. Any one of the joint promisors may be compelled to perform: {section 43, para1}: when
two or more persons make a joint promise and there is in the absence of express agreement to the
contrary, the promisee may compel any one or more of the joint promisors to perform the whole
of the promise. This means the liability of joint promisors is joint and several.
EX: A, B, and C jointly promises to pay D Rs 3000. D may compel all or any or either A or B or
C to pay him Rs 3000.

3. A joint promisor compelled to perform, may claim contribution {section 43,Para 2}: If
one of the several joint promisors is made to perform the whole contract, he may compel the
other joint promisors tocontribute equally with himself to the performance of the promise, unless
a contrary intention appears from the contract.
EX: A, B, and C jointly promises to pay D Rs 3000/-. A is compelled to pay the whole amount
to D. he may recovers Rs 1000/- from B and C.

4. Sharing of losses arising from default:-{section 43, Para 3}: if any one of the joint
promisors makes a default in making contribution, the remaining joint promisors must bear the
loss arising from such default in equal shares.
EX: A, B, and C jointly promises to pay D Rs 3000/-. C is unable to pay anything and A is
compelled to pay the whole amount to D and entitled to receive Rs 1500/- form B.

5. Release of joint promisor:{section 44}:If one of joint promisor is released from his liability
by the promisee, his liability to the promise ceases nut this does not discharge the other
promisors from their liability. The released joint promisor also continues to be liable to the other
promisors.
EX: D1, D2, and D3 jointly owe a debt to C. C releases D1 from his liability and files a suit
against D2 and D3 for payment of debt. D2 and D3 are not released from their liability nor is D1
discharged from his liability to D2 and D3 for contribution.
TIME AND PLACE OF PERFORMANCE OF A CONTRACT

Time and place of performance of a contract are matters/rules to be determined by an agreement

between the parties themselves. Section 46 to 50 of the contract Act lay down the rules regarding
the time and place of performance they are follows:-

i. Whe re no application is to be made and no time is specified : [Sec 46]

Where a promisor has to perform his promise without application by the promisee and no time is
specified for performance, the engagement or promise must be performed within a reasonable
time. “What is a reasonable time” is a question of fact in each particular case. It depends on the
special circumstances of the case (contract), the usage of trade, or the intention of the parties
at the time of entering into the contract.

ii. Where time is specified and no application is to be made : [Sec 47]

When a promise is to be performed on a certain day without application by promisee, the
promisor may perform the promise at any time during the usual working hours on such day.

EX: “A” promises to deliver goods at “B”s warehouse on the 1st of January. On that day “A”
brings the goods to “B”s warehouse, but after usual hour of closing it and they are not received.
“A” has not performed the promise.

iii. Application for performance on a certain day and place : [Sec 48]
When a promise is to be performed on a certain day the promisor may undertake to perform it
after the application by the promisee to that affect. In such a case it is the duty of the promisee to
apply for performance at a proper place and time within usual business hours.

iv. Application by the promisor to the promisee to appoint a place : [Sec 49]
When a promise is to be performed without application by the promisee and no place is fixed for
the performance, it is the duty of the promisor to apply to the promisee to appoint a reasonable
place for the performance of the promise and perform the promise at such place.

EX: “A” undertakes to deliver goods to “B” on a fixed day. “A” must apply to “B” to appoint a
reasonable place for the purpose of receiving it, and must deliver it to him at such place.

v. Pe rformance in manner or at the time prescribed or sanctioned by the promisee: - [Sec

50]
The performance of any promise may be made in any manner or at any time which the promise
prescribes or sanctions.
 DISCHARGE OF CONTRACT

It implies termination of contractual obligations. This is because when the parties originally
entered into the contract, the rights and duties in terms of contractual obligations were set up.
Consequently when those rights and duties are put out then the contract is said to have been
discharged. Once a contract stands discharged, parties to it are no more liable even though the
obligations under the contract remain incomplete.

MODES OF DISCHARGE OF CONTRACT

1) DISCHARGE BY PERFORMANCE
2) DISCHARGE BYAGREEMENT OR MUTUTAL CONSENT
3) DISCHCARGE BY IMPOSSIBILITY OR ILLEGALITY
4) DISCHARGE BY OPERATION OF LAW
5) DISCHARGE BY BREACH OF CONTRACT
6) DISCHARGE BY LAPSE OF TIME

1) DISCHARGE BY PERFORMANCE

Performance means the doing of that which is required by a contract. Discharge by performance
takes place when the parties to the contract fulfill their obligations arising under the contract
within the time and in the manner prescribed. In such a case, the parties are discharged and the
contract comes to an end.
Performance of a contract is the most usual mode of its discharge. It may be:

1. Actual performance: When both the parties perform their promises, the contract is
discharged. Performance should be complete, precise and according to the terms of the
agreement. Most of the contracts are discharged by performance in this manner.
Ex: “A” contracts to sell his car to “B” for Rs.15,000/- as soon as the car delivered to “B” and
“B” pays the agreed price for it. The contract comes to an end by performance.

2. Atte mpted performanc or Tender of Performance: In certain situations the promisor offers
performance of his obligation under the contract at the proper time and place but the promise
refuses to accept the performance. This is called as “Te nder” or “Attempted Performance”.
Where a valid Tender is made and is not accepted by the promise, the promisor shall not be
responsible for non-performance and he doest not lose his rights under the contract.

2) DISCHARGE BYAGREEMENT OR MUTUTAL CONSENT

The general rule of law is a thing may be destroyed in the same manner in which it is constituted.
This means a contractual obligation may be discharged by a agreement which may be expressed
or implied.
The various cases of discharge of a contract by mutua l agreement are dealt with in Section 62
and 63 and are discussed below:

1. Novation (Section.62): Novation takes places:

i. When substitution of a new contract for the original one either between the same parties or
between same parties or
ii. The consideration for the new contract is mutually being the discharge of old contract.
iii. Novation should take place before the expiry of the time of the performance of the original
contract.
Ex: “A” owes “B” Rs.10,000/-. He enters into an agreement with “B” a mortgage of his (A‟s)
estate for Rs.5,000/- in place of the debt of Rs.10,000/-. This is a new contract extinguishes the
old one.

2. Rescission (Section.62): Recession of a contract takes place when all or some of the terms of
the contract are cancelled. It may occur:
a) By mutual consent of the parties (or)
b) Where one party fails in the performance of his obligation. In such a case, the other party may
resend the contract without claiming compensation for the breach of contract.

In case of rescission, only the old contract is cancelled and no new contract comes to exist in its
place. Both in novation and in recession, the contract is discharged by mutual agreement.
Ex: “A” and “B” enters into a contract that “A” shall deliver certain goods to be by the 15th of
this month and that “B” shall pay the price on the 1st of the next month. “A” does not supply the
goods. “B” may resend the contract, and need not pay the money.

3. Alteration (Section.62): Alteration means a change in one or more terms of a contract with
mutual consent of parties. In such a case the old is discharged.
Ex: “A” enters into a contract with “B” for the supply of hundred bales of cotton at his godown
No.1 by the 1st of the next month. “A” & “B” may alter the terms of the contract by mutual
consent.

4. Remission (Section.63): Remission means acceptance of a lesser fulfillment of the promise

made or acceptance of a sum lesser than what was contracted for. In such a case, Section.63 of
the Contract Act allows the promise to dispense or remit the performance of the promise by the
promisor, or to extend the time for the performance of to accept any other satisfaction instead of
performance.
Ex: “A” owes “B” Rs.5,000/-. “A” pays to “B” and “B” accepts in the satisfaction of the whole
debt Rs.2,000/- paid at the time and place which Rs.5,000/- were payable. The whole debt is to
be discharged.

5. Waiver: When a contracting party fails to perform his obligation under the contract, the other
party (aggrieved party) may resend the contract and may waive the promisor or release. This is
called as Waiver.
6. By me rger: Merger takes place when an inferior right accruing to a party under a contract
merges into a superior right accruing to the same party under the same or some other contract.
Ex: “P” holds a property under a lease. He later buys the property. His rights as a lessee merge
into his rights as a owner.

3) DISCHCARGE BY IMPOSSIBILITY OR ILLEGALITY

Impossibility of performance:
Section 56, of contract act, deals with the impossibility. If an agreement contains an underwriting
to perform impossibility, it is void-ab-initio. (Void). It is of two types:
1. Impossibility existing at the time of contract: “An agreement to do an act impossible in
itself is void.” If the parties are interested into an agreement to perform something which is
obviously impossible and which may or may not be known to both the parties.
a) If it is known to the parties : if at the time of contract both the parties know that the
performance of contract is not possible, the agreement becomes void.
b) If it is not known to the parties: if both the parties do not know about the impossibility, the
agreement is void on the ground of mutual mistake.
c) If it is known to the promisor only : if the impossibility of a contract not known to the
promise and the promisor alone knows of the impossibility then such promise is bond to
compensate the promisee for any loss he may suffer through the non performance of the promise.

2. Subsequent or supe rvening impossibility:

Impossibility which arises subsequent to the formation of the contract{I.e., a contract to do an
act, which after the contract is made} is called post- contractual or supervening impossibility. In
such a case the contract is void. Impossibility of performance of a contract, as a general rule, is
no excuse for the non performance of the contract.

DOCTRINE OF SUPERVENING IMPOSSIBILITY

A contract will be discharged on the ground of supervening impossibility in the following
cases:-

1. Destruction of s ubject matter of contract:

When the subject matter of a contract, subsequent to its formation, is destroyed without any fault
of parties to the contract, then the contract is discharged.

Example: Taylor Vs Caldwell (1863):

Facts: C agreed to let out a music hall to T on a certain dates. But before those days the hall was
accidentally destroyed by fire.
Judgment: the owner was absolved from liability to let the music hall as promised. Thus the
contract was void.

2. Non-existence or non occurrence of a particular state of things:

Some times, a contract is entered into between two parties on the basis of a continued existence
or occurrence of a particular state of things. If there is any change in the state of things which
formed as the basis of contract, the contract is discharged.
Example: Krell Vs Henry (1903):
Facts: H hired a flat from K for June 26 and 27, 1902 for witnessing a coronation procession of
King Edward VII. K knew of H‟s purpose though the contract contained no reference to this. The
coronation procession was cancelled due to the illness of the king.
Judgment: H was excused from paying the rent for the flat on the ground that existence of the
procession was the basis to the contract. Its cancellation discharged the contract.

3. Death or personal incapacity of the parties:

Where the performance of a contract depends on the personal skill or qualification or the
existence of a given person, the contract is discharged on the illness,
incapacity, or death of that person.
EX: “A” contracts to act at a theatre for 6 months in consideration of a sum paid in advance by
“B”. On several occasions, A is too ill to act. The contracts to act on those occasions become
void.

4. Change of law: When a sub sequent change of law takes place or the government takes some
power under some special power, so that the performance of a contract becomes impossible, the
contract is discharges.
EX: There was a contract of a sale of trees of a forest, subsequently by an act of legislature; the
forest was acquired by the state government. The contract was discharged by impossibility
created by subsequent change in law.

5. Out-break of war: All contracts entered into with an alien enemy during war is un lawful and
therefore impossible of performance. Contracts entered into before the out-break of war are
suspended during the war and may be received after the war is over.

Effects of supe rvening impossibility:

I. When the performance of a contract becomes impossible or unlawful to its formation, the
contract becomes void.

II. Where one person has promised to do something which he knew, or with reasonable
diligence, might have known, and which the promisee did not know to be impossible or un-
lawful, the promisor must make compensation to the promisee for any loss which the promisee
incurred through the non-performance of a contract.

III. 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 bo und to restore (return)
it, or to make compensation to it, to the person from whom who received it.

EX: A pays B Rs. 1000 in consideration of B‟s promise to marry C, A‟s daughter. C is dead at
the time of promise. The agreement is void, but B must repay A Rs.1000.
 Cases not covered by the doctrine of supervening impossibility
( Impossibility of performance is not an excuse)

1. Difficulty of performance: A contract is not discharged merely because that it has become
more difficult of performance due to some uncontemplated events or delays.
Example: Tsakiroglou and Co.ltd. (Vs) Noblee Throl G.M.B.H...(1962):
Facts: A agreed to sell to B 300 tons of Sudan groundnuts c.i.f Hamburg. The usual and normal
route at the date of the contract was via Suez Canal. Shipment was to be in November/December,
1956, but on November 2, 1956 the canal was closed to traffic and it was not reopened until the
following April. A refused to ship the goods via the cape of good hope on the plea that the
contract had been frustrated by reason of the closing of the Suez route. Judgme nt: The contract
was not frustrated as A could have transported the goods via the Cape of Good Hope.

2. Comme rcial impossibility: A contract is not discharged merely because expectation of higher
profits is not realized, or the necessary raw material is available at a higher price because of the
outbreak of war, or there is a sudden depreciation of currency. Thus, performance cannot be
excused on the ground of commercial impossibility.

3. Default of third person: when a contract could not be performed because of the default of a
third person on whole work the promisor relied in such a case impossibility of performance
cannot be excused. Thus it is not discharged.
Example: Ganga Saran Vs Ram Charan (1952):
Facts: A agreed to sell to B a specified quantity of cotton goods to be manufactured by a
particular mill. B agreed to deliver as and when goods might be received from the mill. A time
was named for the completion for the delivery. A could not fulfill the agreement as the mill
failed to produce the goods. Judgment: B was entitled to recover damages from A.

4. Strikes, lock outs, and civil disturbances: A contract is not discharged by reason of strike by
the workers, or outbreak of some civil disturbances interrupting the performance of promise.
However, the parties to a contract may agree to the contrary by making an express provision in
this regard.

5. Failure of one of the object: if a contract is made for fulfillment of several objects, the failure
of one or more of them does not discharge the contract. Example: He rne bay steam Boat
Company (Vs) Hutton (1903): Facts: “HB” agreed to let out a boat to “H”.
a) for viewing a naval review on the occasion of the coronation of Edward VII, b) To sail round
the fleet, Owing to the king‟s illness the naval review was abandoned but the fleet was
assembled. The boat, therefore, could be used to sail round the fleet.
Judgment: The contract was not discharged, because failure of one of the object does not
discharge the contract.

6. Self induced impossibility: if impossibility arises due to a party‟s own conduct or act {i.e., a
deliberate act or a negligent act}, it cannot be called as supervening impossibility, and therefore
the party is not received from his obligation to perform.
4) DISCHARGE BY OPERATION OF LAW
Ans: A contract may be discharged by operation of law which takes place:
1. By Death : If contracts involving personal skill or ability of the promisor, the contract is
discharged / terminated on the death of the promisor.

2. By insolvency : When a person is adjudged insolvent, he is discharged from all liabilities

incurred prior to his adjudication.

3. By merger : Merger takes place when an inferior right accruing to a party under a contract
merges into a superior right accruing to the same party under the same or some other contract. In
such a case, the contract may be discharged.

4. By unauthorized alteration of the terms of a written agreement : Where a party to a

contract makes any material alteration in the contract without the consent of the other party, the
other party can avoid the contract.

5. By rights and liabilities becoming vested in the same person : When the rights and
liabilities under a contract vests in the same person, the other parties are discharged.

5) DISCHARGE BY BREACH OF CONTRACT

breach of contract means promisor fails to perform the promise or breaking of the obligations
which a contract imposes. It occurs when a party to the contract without lawful excuse does not
fulfill his contractual obligation or by his own act makes it impossible that he should perform his
obligation under it. It confers a right of action or damages on the injured party.
Branch of contacts may be of two types:
1. Actual breath of contact.
2. Anticipatory breath of contact.

1. Actual breach of contract:

Actual breach means promisor‟s failure to perform the promise on due date of performance.
When a promisor fails or refuses to perform the promise upon the due date for performance then
it is called actual breach of contract. In such a case the promisee is exempted and may resend the
contract. Promise can sue the party at fault for damages for breach of contract.
Ex: O’Neil (vs) Armstrong (1895):
Facts: „P‟, a British subject, was engaged by the captain of a war ship owned by the Japanese
government to act as a fire man. Subsequently when the Japanese government declared war with
china, “p” was informed that the performance of contract would bring him under the penalties o
the foreign enlistment act . He consequently left the ship.
Judgment: He was entitled to recover the wages agreed upon.

2. Anticipatory Breach of contract:

It occurs when a party to executory contract declares his intension of not performing the contract
before the performance is due. It may take place in two ways.

a) Expressly by words : here a party to the contract communicates to the others party before the
due date o performance, his intention not to perform it.
Ex: Hochster (vs) de la tour (1853):
Facts: “D” engaged “H” on 12th of April to enter into his service as courier and to accompany
him upon a tour. The employment was to commence on 1st June. On 11th may “D” rote to “H”
telling him that services would no longer be required.”H‟ immediately brought an action for
damages although the time for performance had not arrived.
Judgment: He was entitled to do so.

b) Implied by the conduct: Here a party by his own voluntary act disables himself from
performing the contract.
Ex: a person contracts to sell a particular horse to another on 1st of June and before the due date
he sells the horse to somebody else.
Effect/right of an anticipatory breach: In case of anticipatory breach, the promisee is excused
from performance and he may choose any one of the following two options:
1. He can treat the contract as discharged so that he is absolved of the performance of his party of
the promise.
2. He can immediately take a legal action for breach or wait till the time the act was to be done.

6) DISCHARGE BY LAPSE OF TIME

A contract stands discharged if not enforced within a specified period called the „period of
limitation„. The Limitation Act, 1963 prescribes the period of limitation for various contracts.
For instance, period of limitation for exercising right to recover an immovable property is twelve
years, and right to recover a debt is three years. Contractual rights become time barred after the
expiry of this limitation period. Accordingly, if a debt is not recovered within three years of its
payment becoming due, the debt ceases to be payable and is discharged by lapse of time.
 REMEDIES FOR BREACH OF CONTRACT

When a promise or agreement is broken by any of the parties we call it a breach of contract. So
when either of the parties does not keep their end of the agreement or does not fulfil their obligation
as per the terms of the contract, it is a breach of contract. There are a few remedies for breach of
contract available to the wronged party. Let us take a look.

1] Rescission of Contract

When one of the parties to a contract does not fulfil his obligations, then the other party can rescind
the contract and refuse the performance of his obligations. As per section 65 of the Indian Contract
Act, the party that rescinds the contract must restore any benefits he got under the said agreement.
And section 75 states that the party that rescinds the contract is entitled to receive damages and/or
compensation for such a recession.

Example: X contracts to supply certain goods to Y for Rs. 5000 on 1 st december. If X fsils to supply
the goods on that date, Y need not to pay the price. Y may treat the contract as rescinded. He may
also file a suit for rescission and claim damages

2] Suit for Damages

The term “Damages” means monetary compensation payable by the defaulting party to the
affected party for the loss suffered by him when contract was breached. Therefore, the aggrieved
party may bring an action for damages against the party who is guilty of the breach of contract.

The party who is guilty of breach is liable to pay damages to the aggrieved party. The main
purpose of awarding damages is to put the injured person in as good a position as he would have
been if performance had been rendered as promised. Therefore, the aggrieved party can recover
the actual damages and nothing more. Exemplary damages can be awarded only when the
feelings of the injured party are considered.

Types of Damages
There are four types of damages, which.can be claimed by the aggrieved party.

1. Ordinary Damages or General Damages: Damages that arise in the ordinary course of
events from the breach of contract are called ordinary damages.
2. Special Damages: Special damages are those damages that are payable for the loss arising on
account of some special or unusual circumstances. That is, they are not due to the natural and
probable consequences of the breach of the contract.
3. Exemplary or Vindictive Damages: These damages are awarded against the party who has
committed a breach of the contract with the object of punishing the erring as defaulting party and
to compensate the aggrieved party. Generally, these damages are awarded in case of action on
lost or 1br1141each of promise.
E.g., breach of contract to marry, or not honouring of customer‟s cheque by the bank without any
proper reason.

4. Nominal Damages: Nominal damages are awarded to the aggrieved party when there is only
technical violation of the legal rights. Here no substantial loss is caused. These damages are very
small in amount. They are awarded simply to recognize the right of the party to claim damages
for the, breach of the contract.
Sometimes, the damages are not an adequate remedy for breach of the contract. In such cases,
the Court may, at the suit of the party not in breach, direct the patty in breach to carry out his
promise as per the terms of the contract. This is known as specific performance of the contract.

Example : A agreed to sell an old stamp of pre- independence period to 8 for Rs.500. But
subsequently, A refused to sell it. In this case, B may,file a suit against A for the specific
performance of the contract. And the Court may order A to sell the stamp to B as agreed.

3] Suit for Specific Pe rformance

This means the party in breach will actually have to carry out his duties according to the contract. In
certain cases, the courts may insist that the party carry out the agreement. So if any of the parties
fails to perform the contract, the court may order them to do so. This is a decree of specific
performance and is granted instead of damages.

After the Specific Relief (Amendment) Act, 2018, the specific performance of contracts has been
made a rule rather than an exception. Sections 9 to 25 of the Specific Relief Act contain
provisions regarding the specific performance of the contracts. Section 10 specifies the cases in
which specific performance of a contract can be enforced. According to this provision, in two
cases, specific performance of any contract may, in the discretion of the court, be enforced-

 Firstly, when there is no standard for calculating the actual damages in case of breach of
contract by either party;
 Secondly, in the cases where compensation in the form of money cannot provide adequate
relief to the injured party. The example of this is the breach of contract to transfer the
immovable property or the transfer of any property which is not ordinary article of commerce
or has special value or that product is not easily available in the market.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can order
B to perform his duties under the contract and sell the land to A.
4] Injunction
The term”Injunction” may be defined as an order of the Court instructing a person to refrain
from doing some act that has been the subject- matter of contract. Where a party has promised not
to do something and he does it, and thereby commits a breach of contract, the aggrieved party
may, seek the protection of the Court under certain circumstances and obtain an injunction.

Example: A contracted to sing only at B‟s theatre and nowhere else for a certain period.
Afterwards A made a contract with C to sing at C‟s theatre and refused to sing at B‟s theatre. The
Court refused to order specific performance because the contract was of a personal nature but
granted an injunction against A to restrain him from singing anywhere else.

An injunction is basically like a decree for specific performance but for a negative contract. An
injunction is a court order restraining a person from doing a particular act. So a court may grant an
injunction to stop a party of a contract from doing something he promised not to do. In a prohibitory
injunction, the court stops the commission of an act and in a mandatory injunction, it will stop the
continuance of an act that is unlawful.

When a party is in breach of negative term of the contract (i.e., where he is doing something
which he promised not to do), in such a case the court may by issuing an order restrain him from
doing what he promised not to do, such an order of the court is known as “Injunction”.
The grant of an Injunction by the court is normally discretionary, but there seems no reason why
the court should refuse the grant of an Injunction to restrain the breach of contract.
a) Whereby a promisor undertakes not to do something.
b) Which is negative in substance though not in form

Ex: “N”, a Film Actress agreed to act exclusively for “W” for a year and for no one else. During
the year, she contracted to act for “Z”. She could be restrained by Injunction from doing so.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of the contract
is prevented from finishing his performance of the contract by the other party, he can claim quantum
meruit. So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the work
he has already done. The claim for quantum meruit arises only when the original contract is
discharged and it could be brought by the party who is not in default. The claim on “Quantum
Meruit” arises in the following cases:
1. When an agreement is discovered to be void: When an agreement is discovered to be void
or when a contract becomes void, any person who has received any advantage under such
contract is bound to restore it or to make compensation for it.

2. When something is done without any intention to do so gratuitously: When a thing is

unlawfully done or goods are supplied by a person without any intention to do so gratuito usly to
another person and such other person enjoys the benefit there of, he is bound to make
compensation to the former.

3. Where there is express or implied contract to render services but there is no agreement as to
remuneration. In such a case, the court decides the reasonable remuneration.

4. When the completion of the contract has been prevented by the Act, of the other party to the
contract, they could recover the Quantum Meruit.

5. When a contract is divisible: When a contract is divisible and the party is not in default, has
enjoyed the benefit of the part performance, the party in default may sue on quantum meruit. But
if the contract is not divisible, the party in default cannot claim remuneration on the ground of
quantum meruit.

6. When an indivisible contract is completely performe d but badly: When an indivisible

contract for a lump sum is completely performed, but badly, the person who had performed the
contract can claim the lump sum but the other party can make a deduction for bad work.
 QUASI CONTRACTS

Under certain special circumstances, a person may receive a benefit to which the law regards
another person as better entitled or for which the law considers he should pay it to the other
person, even though there is no contract between the parties these relationships are terms as
“Quasi Contract” or constructive contracts under the English Law and “Certain relationships
resembling those created by contracts” under the Indian Law.

Quasi contract is not made by a process of proposal and acceptance or by free consent. It is a
trust upon us by law. A Quasi-contract rests upon the equitable, which declares that a person
shall not be allowed to enrich himself unjustly at the expense of another.

Salient features of Quasi-contract:

i. It is a right which is available not against a particular person or persons and so, that in this
respect it resembles a contractual right.
ii. It does not arise from any agreement of the parties concerned it is imposed by law.
iii. Such Quasi-contractual right is always a right to money, and generally, though not always, to
a liquidated sum of money.

TYPES OF QUASI-CONTRACTS:

1. Supply of necessaries (sec68):

According to section 68, if a person incapable of entering into a contract or any one whom he as
legally bound to support is supplied by another with necessaries suited to his condition in life the
person who has furnished such supplies I entitled to be reimbursed from the property of such
incapable person.
Ex: ‘A‟, supplies “B” a lunatic with necessaries suitable to his condition in life. ”A” is entitled to
reimburse from B‟s property.

2. Payment by an interested person (Section.69)

A person, who is interested in payment of money which another is bound by law to pay and who
therefore pays it, is entitled to be reimbursed by other.
The essential requirements of Section.69 as follows:
a) The payment mode should be bonafide for the protection of one‟s interest.
b) The payment should not be a voluntary one.
c) The payment must be such as the other party was bound by law to pay.

Ex: “B” holds land Bengal on a lease granted by the Zamindar. The revenue payable by “A” to
the Government being in arrears his land is advertised for sale by the Government under the
Revenue Law. The sale will be annulment of “B‟s lease. ‟B‟ to prevent the sale and the
consequent of annulment of his own lease pays to the Government the sum due from A. A is
bound to make good to B the amount so paid.

3. Obligation to pay for non-gratuitous acts (Section.70):

When a person lawfully does anything for another person or delivers anything to him not
intending to do so, gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make the compensation to the former in respect of or restore, the things do done or
delivered.

Ex: “A”, a tradesman lease goods at “B” house by mistake. B treats the goods as his own. He is
bound to pay for them to A.

4. Responsibility of finder of goods (Section.71):

A person who finds goods belonging to another and takes them into his custody is subject to the
same responsibility as Bailee. He is bound to take as much care o the goods as a man of ordinary
prudence would under similar circumstances take of his own goods of the same bulk, quality and
value. He must also take all necessary measures to trace its owner. If he does not, he will be
guilty of wrongful conservation of the property till the owner is found out, the property in goods
will vest in the finder and he can retain the goods as his own against the whole world (except the
owner).

Ex: “F” picks up a diamond on the floor of „S‟s shop. He hands it over to „S‟ to keep it till the
real owner is found out. No one appears to claim it for quite some week‟s inspite of wide
advertisement in the news papers. „F‟ claims the diamond from „S‟ who refuses to return. „S‟ is
bound to return the Diamond to „F‟ who is entitled to retain the diamond against the whole world
except the true owner.

5. Mistake or coercion (Section.72):

A person to whom money has been paid, or anything delivered by mistake or under coercion,
must repay or return it to the person who paid it by mistake or under coercion.

Ex: “A” & “B” jointly owe Rs.100/- to “C”. A alone pays the amount to C and B not knowing
this fact pays Rs.100/- over again to “C”. C is bound to pay the amount to B.