Indian Contract Semester 1

LAW OF CONTRACTS SEMESTER – 1(BA.
LLB)
UNIT-1
Meaning of Contract, Nature and
Scope of Contract
Meaning of Contract: – A contract means an agreement, which is enforceable by law.
An agreement consists of reciprocal (mutual) promises between the two parties. In the
case of contract each party is legally bound by the promise made by them. A contract is
legally enforceable when it meets the requirements of applicable law.
What is the definition of contract?

Definition of Contract: – Contract is a promise enforceable by law. The promise
may be to do something or to refrain from doing something. The making of a
contract requires the mutual assent of two or more persons, one of them
ordinarily making an offer and another accepting. Contract is an agreement or
set of promises giving rise to obligations that can be enforced or recognized by
law.
According to section 2(h) of the Indian Contract Act, 1872, contract is an
agreement enforceable by law. An agreement becomes a contract when it
satisfies all the essentials of a valid contract mentioned in Section 10.
What are the essentials of a valid contract?

Essentials of a valid contract are as follows: –
1. Two Parties: – A valid contract must include at least two parties identified by
the contact. One of these parties will propose the offer and the other party will
eventually accept it. Both parties should have legal existence, e.g. must be
companies, schools, organizations, etc. or natural persons.
2. Agreement: – A contract is initially an agreement when the person to whom
the offer is made indicates his acceptance to it. There is an agreement that is
the foundation of a contract.
3. Free Consent: – The parties must agree on the same thing in the same sense
and at the same time. An agreement without consent is not legally binding.
The parties are called to consent when they agree on the same thing in the
same sense; moreover, the parties to the contract must have free and genuine
consent to constitute a valid contract i.e., not to be obtained by
misrepresentation, fraud, undue influence or mistake. If the agreement is not
free, the contract is void.
4. Intention to create a Legal Relationship: – There should be an intention by
both parties to form a legal relationship and to bind themselves legally as a
result of such agreement. Thus, agreements of a social or domestic nature are
not contracts, as the parties do not intend to have a legal relationship. For
LAW OF CONTRACTS SEMESTER – 1(BA.LLB)
Example: – where two parties agree to move together, a legal contract will not
amount.
5. Contractual Capacity: – The parties to the agreement must be able to enter
into a valid contract. According to the Act, every person is capable of entering
into a agreement, if he or she: –
o is of the age of majority;
o is of sound mind; and
o is not disqualified from contracting by any law.
6. Consideration: – An agreement by an incompetent person is not valid. A valid
contract should be supported by consideration. The idea means “something in
return”. It can be cash, kind or an act. It can be past, present or future. The
idea must be genuine and valid.
7. No Unlawful Considerations: – According to the Act, the consideration of an
agreement is called unlawful if: –
o it is prohibited by law,
o it is of such a nature that, if allowed, it will defeat the provisions of
any law,
o it is fraudulent,
o it includes or means injury to the property of the person/other, and
o the court considers it immoral.
8. Lawful Consideration: – Something in return is a consideration. In each
contract, the agreement must be supported by consideration. It must be valid
and genuine.
9. Lawful Object: – Section 23 of the Indian Contract Act, 1872, The
consideration or object of an agreement is lawful, unless it is forbidden by
law; or is of such a nature that, if permitted, it would defeat the provisions of
any law; or is fraudulent; or involves or implies injury to the person or
property of another; or the Court regards it as immoral, or opposed to public
policy. In each of these cases, the consideration or object of an agreement said
to be unlawful. Every agreement of which the object or consideration is
unlawful is void.
What is the scope of Contract?
The scope of law of contract changes from one particular country to
another. The non- contractual obligations are the ones in which an
individual is required to undertake a particular obligation which is not
correct for another individual. The contract law governs the basic
contractual obligations and the rights which are raised from the
agreements which are made between two or more persons and
deems the promissory under certain obligation in order to perform his
or her duties according to the said procedure.[xii] An obligation
pertaining to the contract requires the very existence of an ‘obligor’
who is the person who is actually legally bound under the obligation
and the obligee who is the person for whose benefit the obligation
exists.[xiii] This feature of the contract is the major feature which
makes contract law different from criminal law obligations.
What is the nature of contract?

The nature of contract is that it’s the branch of law which determines the
circumstances in which promises made by the parties to a contract shall be
legally binding on them. It does not lay down the duties and responsibilities
which the law will enforce but It consists a number of limiting principles, subject
to which; the parties may create rights & duties for themselves which the law will
upload.
Nature of contract, a contract is an understanding enforceable at law, made
between two or more persons, by which rights are acquired on the one side to
acts or forbearances on the other. To make an agreement which results in a
contract, there must be an offer and an acceptance; and to the promises which
stem from the offer and acceptance the law attaches a binding force of
obligation.
Types of contracts on the basis of

formation of the contract
Verbal contracts
Verbal or oral contracts are those which are formed by oral communication.
From time immemorial, contracts have been made orally itself. But, because
verbal contracts are difficult to prove in courts, these contracts are thus,
generally not made anymore. Having said that, verbal contracts are valid
contracts and enforceable by law, provided that they fulfil the conditions of
valid contracts as given in Section 10 of the Indian Contract Act, 1872.
Quasi-contracts
Sometimes, rights and obligations might arise not by contracts that the
involved parties have assented to, but rather by law. These create legal
relations that resemble contracts and are called quasi-contracts, with the
word “quasi” meaning “seemingly”. Chapter V of the Indian Contract Act
talks about ‘Certain relations resembling those created by contract’. This part
is on quasi-contracts, even though the Act does not mention the term ‘quasi-
contract’ anywhere.
E-contracts
The term “electronic contract” refers to a contract that is made through e-
commerce, with the parties rarely meeting in person. It refers to electronic
commercial transactions that are undertaken and completed. A consumer
using an ATM to withdraw money is an example of an electronic contract.
When a person orders goods through an online shopping website, this is an
example of an e-contract. The spread of technology and globalisation has
expedited the presence of e-commerce enterprises around the world. Online
auctions are also becoming more common, where people may purchase and
sell items by bidding on them over the Internet.
The Indian Contract Act does not explicitly recognize e-contracts. At the
same time, it does not prohibit them as well. Indian courts have recognized
e-contracts but they must fulfil the essentials of a valid contract under
Section 10, especially the condition of free consent which is very often
marred in e-contracts.
The legal basis of e-contracts can be somewhat drawn from the Information
Technology Act, of 2000 and the Indian Evidence Act, of 1872. The IT Act
recognises that proposals, acceptances, and revocations of proposals and
acceptances, as the case may be, can be expressed in electronic form or
utilizing an electronic record and that such electronic form or means shall not
be deemed unenforceable, solely because such electronic form or means was
used for that purpose.
The Indian Evidence Act extends recognition to computer output, which is

defined as any information contained in an electronic record that is written
on paper, stored, recorded, or reproduced on optical or magnetic media
produced by a computer (hereinafter referred to as the computer output).
Without further proof or production of the original, such information in
compliance with Section 65B shall be acceptable in any proceeding as
evidence of any contents of the original or any fact stated therein of which
direct evidence would be admissible.
Types of contracts on the basis of validity

of the contract
Too often problems arise with contracts and the courts must judge whether
they are valid or not in the first place. Based on developed jurisprudence and
the laws, contracts can be valid and when invalid, can be void, voidable or
void-ab-initio.
Valid contracts
Section 10 provides for certain essentials as follows, which all contracts must
fulfil to be considered valid:
1. There must be free consent between the parties involved.

2. The parties must be competent to contract.
3. The consideration and object of the contract should be lawful.
4. The contract must not be declared void under the law.
These essentials when present make a valid contract. Other than these
essentials, certain other things also need to be fulfilled for the contract to be
recognized by courts. Firstly, there must be a meeting of the minds of the
parties involved. This means that the parties involved must agree on the
same things in the same sense
Void contracts
Section 2(j) says that a contract that ceases to be enforceable by law is void
from the moment it becomes unenforceable. The term “void” in law means
“not legally binding” or “invalid.
A contract becomes void when it is unable to fulfil the conditions mentioned

in Section 10. Thus, when parties are incompetent to form a contract, like
minors or people of unsound minds, then the contract becomes void. Further,
the impossibility of performance also makes contracts void.
Apart from the above, the following are certain other conditions of void
contracts:
1. Section 20 states that an agreement becomes void when there is a

mistake of fact concerning an essential facet of the agreement. It is
important to note that a mistake of law does not make a contract
void nor does a one-sided mistake make it void.
2. According to Section 24, a contract with an illegal object or
consideration is void.
3. Section 25 states that an agreement without consideration is void
unless it is in writing and registered, or is a promise to compensate
for something done or is a promise to pay for a debt barred by
limitation law.
4. Section 26 says that agreements in restraint of marriage are void.
5. Section 27 says agreements in restraint of trade are void.
6. Section 28 makes a contract void if it is in restraint of legal
proceedings.
7. Section 29 makes a contract void if the meaning of the agreement
cannot be made certain.
Voidable contracts
Voidable contracts are those contracts that can be made void on the will of
one of the parties. In these scenarios, generally, consent is not free and it is
obtained under coercion (Section 15), undue influence (Section 16), fraud
(Section 17) and misrepresentation (Section 18). Here, the party defrauded
or unduly influenced has the option to make the contract void.
Void-ab-initio contracts
They are a special type of void contract that means “void from the very
beginning”. In essence, void-ab-initio contracts are those contracts that
never existed from the moment of their inception. The most common
example of a void-ab-initio contract is the one made by a minor. In Mohori
Bibee v. Dharmodas Ghose (1903), it was declared conclusively that minor
contracts are void-ab-initio.
Unenforceable contracts
If a contract is found to be unenforceable, the court will not order one party
to act or compensate the other for failing to meet the contract’s
requirements. While the elements of an enforceable contract (offer,
acceptance, and consideration) appear straightforward, there are severe
enforceability standards. A contract can be declared void for a variety of
reasons, including the circumstances surrounding the signing, the contents of
the agreement, or events that occur after the contract is signed.
Lack of capacity, duress, undue influence, deception, nondisclosure,

unconscionability, public policy, mistake, and impossibility are all typical
defences to contract enforcement. If these conditions are present, a contract
that is otherwise lawful may be rendered unenforceable. In essence, these
contracts can be enforced with the consent of both parties but cannot be
enforced legally in courts.
Illegal contracts
Contracts that violate the law of the land are illegal contracts. Section 10
states that the object or consideration of a contract should not be unlawful.
Thus, Section 10 prohibits illegal contracts. For example, contract killings
facilitated by contracts for murder are illegal as murder is a crime
under Section 302 of the Indian Penal Code.
Types of contracts on the basis of nature

of the contracts
The nature of the contract is diverse and specific to the parties involved. On
the broad level, they can be classified as unilateral, bilateral, unconscionable,
adhesion, aleatory and option types. All contracts more or less fall under at
least one of these broad categories.
Unilateral contracts
As the name suggests, unilateral contracts are those contracts where only
one party makes a promise. The other party is not specified and the contract
gets completed by performance. The offeror cannot be asked to fulfil the
offer until performance is made by someone. The offer made is a general
offer. General offers are types of offers that are made to the world at large
and their acceptance need not be communicated for it to constitute as valid
acceptance under law. Section 8 of the Indian Contract Act validates general
offers and hence unilateral contracts saying that acceptance done by
performing the conditions in a proposal or acceptance by receiving
consideration is valid acceptance.
Bilateral contracts
These are the contracts where reciprocal promises are made by the parties
involved. Thus, parties involved are fixed and the contract is formed by way
of communication of offer and acceptance. These are also called two-sided
contracts and are the most common type of contract in use.
Unconscionable contracts
An unconscionable contract is one that is clearly one-sided and unfair to one
of the parties involved and hence cannot be enforced by law. If a lawsuit is
brought against an unconscionable contract, the court will very certainly
declare it void. There are no monetary damages awarded, but the parties are
released from their contractual duties. It is up to the courts to determine
whether or not a contract is unconscionable
Adhesion contracts
An adhesion contract, sometimes known as a “boilerplate” contract or a
“standard form” contract, is a contract between two parties in which one
party (the one with greater bargaining strength) establishes all or most of
the contract’s provisions. The opposite party (the one with less bargaining
strength) has little or no leverage to reach an acceptable agreement.
Adhesion contracts eliminate the need for individually tailored contracts for
each customer. Although adhesion contracts have the potential to boost
efficiency and speed up the purchasing process, their use is controversial due
to some of the possible benefits and drawbacks. Non-negotiable clauses are
included in adhesion contracts, which are effectively “take it or leave it”
contracts.
Adhesion contracts
An adhesion contract, sometimes known as a “boilerplate” contract or a
“standard form” contract, is a contract between two parties in which one
party (the one with greater bargaining strength) establishes all or most of
the contract’s provisions. The opposite party (the one with less bargaining
strength) has little or no leverage to reach an acceptable agreement.
Adhesion contracts eliminate the need for individually tailored contracts for
each customer. Although adhesion contracts have the potential to boost
efficiency and speed up the purchasing process, their use is controversial due
to some of the possible benefits and drawbacks. Non-negotiable clauses are
included in adhesion contracts, which are effectively “take it or leave it”
contracts.
Option contracts
Option contracts enable one party to enter into a new contract with a
different party at a later date. Exercising the option means entering into a
second contract, and a common illustration of this is in real estate, where a
prospective buyer will pay a seller to remove a property from the market,
then have a new contract formed to buy the property outright at a later date
if they desire.
Types of contracts on the basis of

execution of the contract
Contracts can be executed or performed immediately or over a period of
time. The important thing for consideration is the time frame for the
fulfilment of the promise. On the basis of this time frame, contracts may be
executory or executed.
Executory contracts
These are contracts that are continuing in nature. For example, a lease
agreement. Here, throughout the term of the contract, the owner would
allow the tenant to stay in the former’s property and the tenant would pay
monthly rent.
Executed contracts
These are contracts whose obligation has been fulfilled. So the purchase of a
product or service is an executed contract.
Standard form of contract

Standard form of contract in lay-man term means ‘take it or leave it’ kind of
contract, in this type of contract the other party is not in position to negotiate
with the terms and condition laid down in the contract, party just have the
option of either enter into the contract or forget about the contract. Thus, the
fundamental right to negotiate is affected by this type of arrangement
popularly these type of contract are known as adhesion or a boilerplate kind
of contract. Most common type of standard form of contracts are insurance
company contract, on purchasing a washing machine, signing up for your e-
mail, social networking sites, etc.
Legal Status of Standard form of Contract (SFC)

Indian contract system does not have any specific differentiation between SFC
and general contract, as the SFC is a kind of contract which is govern by the
laws provided for general contracts in Indian contract Act 1872. Due to heavy
industrial development these kind of contract has become common and are
executed in large numbers now a days. This had led to demand of formulation
of fledge rules on standard form of contract to protect the rights of the weaker
party in standard form of contract.
However, in many countries judiciary is empowered to apply the principle of

natural justice and give good justice to the weaker party as it is in Israel there
are certain provisions that may be cancelled by court of law. Apart from courts
some legislature have also made laws related to this kind of contract
Ways to limit exploitation from SFC
It is easy to exploit the party entering into standard form of contract, there
are certain rules made to protect the interest of the weaker party. Specific
procedure has been mention in order to protect the weaker party in SFC
contract.
Reasonable Notice
A reasonable notice must be given by the person delivering the document to
give adequate information about the terms and condition laid down in the
contract. This principle was propounded in the case of Henderson V.
Stevenson from House of Lords.
Contractual Document
For a standard form of the document, there must be a contractual document
signed between the parties in order to make it enforceable in court. The basic
problem lies between identifying the document as a contract document or as
a receipt. Different between these two is, if the document clearly explains the
express and implied a condition in the document then it is a contractual
document if not then it is a receipt. The contract must be signed by the person
accepting the terms and conditions mentioned in the document.
Unreasonable or Unfair terms

Pointing out unreasonable terms in the contract can be one the protective
safeguard for the weaker party. Unreasonable terms of contract can be said
about those terms in the contract which contradicts the very purpose of the
contract or are against the public policy. In Lilly White V. Mannu-Swami this
principle has been clearly explained in the case. In this case the laundry receipt
contained a condition that in case of loss or destruction of cloth only 15%
money of the market price of cloth will be returned these clauses were held
unreasonable from the court and was held that the clauses were against the
public interest.
Theory of Fundamental breach

It’s one of the tools to protect the weaker party from exploitation through this
theory. What happens in theory there is a core or fundamental of the contract
which is bounding on both parties to follow them and if that is not followed
then there will be a breach of contract
Exemption Clauses and Third Party
Under this clause we have to take a look at the doctrine of privity of contract
which says that the contract is between the two parties who have contracted
with each other and no third party is entitled to enjoy the right provided in the
contract nor hold any liability.
As the third party does not hold any responsibility for the irregularity in the
contract, he is not entitled to any benefit from the contract.
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Types of Offer under Indian

Contract Act, 1872
Introduction
An offer is the first step in the formation of a contract, it marks the beginning
of contractual obligation between the parties. As is a known fact that
Acceptance can only be made to a prior offer, an offer is essential for the
formation of a contract.
An offer is defined under Section 2(a) of The Indian Contract

Act (hereinafter, ICA) as: When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining
the assent of that other to such act or abstinence, he is said to make a
proposal.
Types of Offer
Express offer and Implied offer
Section 9 of The ICA defines both of them as: In so far as the proposal or
acceptance of any promise is made in words, the promise is said to be express.
In so far as such a proposal or acceptance is made otherwise than in words,
the promise is said to be implied.
Therefore, any offer that is made with words, it may be regarded as express.
Any promise that is made otherwise than in words is implied. A bid at an
auction is an example of an Implied offer. A case in this regard is Upton-on-
Servern RDC v. Powell, wherein the defendant called a fire brigade assuming
that those services would be free to him, however it was found that his Farm
did not come under that of Upton. The court held that the truth of the matter
is that the Defendant wanted the services of Upton, he asked for the services
of Upton and in response to that they offered their services and they were
rendered on an implied promise to pay for them.
In Ramji Dayawala & Sons (p) Ltd v. Invest Import, a case between an
Indian and Yugoslavian party the notice for revocation of an arbitration clause
in the contract between the parties was made by the Indian party, to which
the other party gave no reply. It was held that this would amount to an implied
acceptance i.e.- the arbitration clause was deleted from the contract, and a
suit would lie in the court of law. Similarly entering into an omnibus also
amounts to implied acceptance, same as consuming edibles at a self-service
restaurant.
General Offer
A General Offer is an offer that is made to the world at large. The genesis of a
General Offer came about from the Landmark case of Carlill v. Carbolic
Smoke Ball Co. A company by the name Carbolic Smoke Ball offered through
an Advertisement to pay 100 Pounds to anyone who would contract increasing
epidemic Influenza, colds or any disease caused by cold after taking its
Medicine according to the prescribed instructions. It was also added that 1000
Pounds have been deposited in Alliance bank showing our sincerity in the
matter. One customer Mrs Carlill used the medicine and still contracted
Influenza and hence sued the company for the reward. The Defendants gave
the argument that the offer was not made with an intention to enter into a
legally binding agreement, rather was only to Puff the sales of the company.
Moreover, they also contended that an offer needs to be made to a specific
person, and here the offer was not to any specific person and hence they are
not obliged to the Plaintiff.
Setting aside the arguments of the Defendant, the bench stated that in cases
of such offers i.e- general offers, there is no need for communication of
acceptance, anyone who performs the conditions of the contract is said to have
communicated his/her acceptance, and moreover, the money deposited by the
Defendant in Alliance Bank clearly shows that they intended to create a legally
binding relationship. Hence the Plaintiff was awarded with the amount. An
Indian authority in this regard is Lalman Shukla v. Gauri Dutt, wherein a
servant was sent by his master to trace his missing nephew. In the meanwhile,
he also announced a reward for anyone finding his nephew, this in itself is an
example of an offer that is made to the world at large and hence a General
Offer.
Valid acceptance based on fulfillment of condition
This concept has been given statutory authority under section 8 of the ICA:
Performance of the conditions of a proposal, or the acceptance of any

consideration for a reciprocal promise which may be offered with a proposal,
is an acceptance of the proposal.
This section was applied by YEARS CJ of Allahabad high court in the case of Har
Bhajan Lal v. Har Charan Lal, wherein the father of a young boy who ran
from home issued a pamphlet for a reward for anyone who would find him.
The Plaintiff found him at the railway station and sent a Telegram to his father.
The Court held that the handbill was an offer that was made to the world at
large and anyone who fulfilled the conditions is deemed to have accepted it.
In State of Bihar v. Bengal Chemical and Pharmaceutical Works
LTD, the Patna HC held that where the acceptance consists of an act, e.g-
dispatching some goods, the rule that there shall be no communication of
acceptance will come into play.
General offer of continuing nature

When a general offer is of continuing nature, like it was in a carbolic smoke
ball case, it can be accepted by a number of people till it is retracted. However,
when a similar offer requires information regarding a missing thing, it is closed
as soon as the first information comes in.
Specific Offer
A Specific offer is an offer that is made to a specific or ascertained person, this
type of offer can only be accepted by the person to whom it is made. This
concept was seen briefly in the case of Boulton v. Jones, wherein the Plaintiff
had taken the business of one Brocklehurst, the defendant used to have
business with Brocklehurst and not knowing about the change in ownership of
business, sent him an order for certain goods. The Defendant came to know
about the change only after receiving an invoice, at which point he had already
consumed the goods. The Defendant refused to pay the price, as he had a set
off against the original owner, for which the plaintiff sued him.
The Judges gave a unanimous judgement holding the defendant not liable.
Pollock CB held that the rule of law is clear, if you intend to contract with A, B
cannot substitute himself as A without your consent and to your disadvantage.
It was also held that whenever a person makes a contract with a specific
personality, a specific party, so to say, for writing a book, for painting a picture
or for any personal service or if there is any set off due from any party, no one
has the authority to come in and maintain that he is the party contracted with.
Cross Offer
When two parties make an identical offer to each other, in ignorance to each
other’s offer, they are said to make cross offers. Cross offers are not valid
offers. For example- if A makes an offer to sell his car for 7 lakhs to B and B
in ignorance of that makes an offer to buy the same car for 7 Lakhs, they are
said to make a cross offer, and there is no acceptance in this case, hence it
cannot be a mutual acceptance.
Basic essentials of a cross offer

1. Same offer to one another- When the offeror makes an offer to the
offeree and the offeree without prior knowledge makes the same offer
to the offeror, then both the object and the party remain the same.
2. Offer must be made in ignorance of each other- The two parties must
make their offer in ignorance of each other.
An important case in this aspect is the English case of Tinn v. Hoffman, the
defendant wrote to the complainant an offer to sell him 800 tons of iron at 69s
per ton, at the same time the complainant also wrote to the defendant an offer
to buy the iron at similar terms. The issue in this case was that, was there any
contract between the parties, and would simultaneous offers be a valid
acceptance. The court held that these were cross offers that were made
simultaneously without knowledge of one another and would not bind the
parties.
Here it is imperative to deduce that for a valid contract to be formed there

needs to be an offer and acceptance of the same, whereas in a cross offer
there is no acceptance, but only simultaneous offers being and therefore a
cross offer will not lead to the formation of a contract.
Counter offer
When the offeree offers a qualified acceptance of the offer subject to
modifications and variations in terms of the original offer, he is said to have
made a counter offer. A counter offer is a rejection of the original offer. An
example of this would be if A offers B a car for 10 Lakhs, B agrees to buy for
8 Lakhs, this amounts to a counter offer and it would mean a rejection of the
original offer. Later on, if B agrees to buy for 10 Lakhs, A may refuse. Sir
Jenkins CJ in Haji Mohd Haji Jiva v. Spinner, held that any departure from
original offer vitiates acceptance. In other words, an acceptance with a
variation is not acceptance, it is simply a counter proposal which must be
accepted by the original offeror, for it to formulate into a contract.
The Bombay High court gave this decision based upon the landmark judgement
of Hyde v. Wrench, in which an offer to sell a farm for 1000 Pounds was
rejected by the Plaintiff, who offered 950 for it. Subsequently the Plaintiff gave
an acceptance to the original offer. Holding that the Defendant was not bound
by a contract, the court said that the Plaintiff accepted the original offer of
buying the farm at the price of 1000 pounds, it would have been a completely
valid contract , however he gave a counter proposal to it, thus rejecting the
original offer.
Partial Acceptance
Counter offer also includes within its contours Partial acceptance, meaning that
a party to the contract cannot agree to those conditions of the agreement that
favour him and reject the rest, the acceptance should be of the complete
agreement i.e.- all its parts. In Ramanbhai M. Nilkanth v. Ghashiram
Ladliprasad, the plaintiff made an application for certain shares in a company
with the underlying condition that he would be made the cashier in its new
branch. The Company did not comply with this and hence the suit. The court
held that the Petitioners application for shares was condition on him being
made the cashier and that he would have never applied for the shares had
there been no such condition.
Acceptance of a counter proposal

In Hargopal v. People’s Bank of Northern India LTD, an application for
shares was made on a conditional undertaking by the bank that the applicant
would be made the director of the new branch. The shares were allotted to
him without fulfilling the condition. The applicant did not say anything and took
his dividends, a subsequent suit by him failed as the court held that he through
his conduct had waived the condition. When a counter proposal is
accepted the contract arises in terms of the counter proposal and not
in terms of the original contract.
Standing offer
An Offer which remains open for acceptance over a period of time is called a
standing offer. Tenders that are invited for supply of goods is a kind of
Standing Offer. In Perclval Ltd. V. London County Council Asylums and
Mental deficiency Committee, the Plaintiff advertised for tenders for supply
of goods. The defendant took the tender in which he had to supply to the
company various special articles for a period of 12 months. In-between this
the Defendant didn’t supply for a particular consignment. The Court held that
the Tender was a standing offer that was to be converted into a series of
contracts by the subsequent acts of the company and that an order
prevented pro tanto the possibility of revocation, hence the company
succeeded in an action for breach of contract.
Difference between an offer and Invitation to

offer
Although Invitation to Offer is not a type of offer per se, it is imperative to
distinguish both to even construe what an actual offer is. An invitation to offer
is an offer to negotiate, an offer to receive offers, offers to chauffeur. An offer
is a final expression of willingness to get into a contract upon those following
terms. The concept of Invitation to offer was explained in the Privy Council
case of Harvey v. Facey, the Plaintiffs in this asked two questions from the
defendant i.e.- Would you sell me your Bumper Hall pen , telegram me the
lowest price? , the Defendant only gave the answer to the latter question ,
post which he refused to sell. The Court held that the defendant was not to
sell as he had only answered the second question and reserved the same for
his first question. Thus, this clearly shows the distinction between an offer and
invitation to offer.
In Adikanda Biswal v. Bhubaneswar Development Authority, when a

development authority made an announcement for allotment of plots on first
come first serve basis on payment of full consideration. An application against
this with full consideration was only considered to be an offer, as the
Development authority only gave an invitation to offer, and the offer can only
be formalized into a contract when it is accepted by the development
authority.
Rules regarding display of goods in shops

In Pharmaceutical Society of Great Britain v. Boots Cash Chemists
Southern Ltd., lord GODDARD CJ, said that it would be wrong to say that a
shopkeeper intends to sell everything that is displayed in his shop. Meaning
that the customer makes an offer, to which the shopkeeper has the discretion
to accept or deny. The shopkeeper may say that he doesn’t have enough stock
of that good and therefore may not sell. Similarly, a bankers catalogue of
charges is also not an offer, the auction held by a person is also only an
invitation to offer and he may not be liable for the transportation costs that
people may have to pay to come to the place of auction, in case he cancels at
the end moment.
Conclusion
The Indian Contract act doesn’t specifically mention the different types of
offers, but as ours is a common law country, we develop law from the decisions
held by Indian and British courts. As an offer is the first step in the formulation
of a contract, it is essential to distinguish what type of offer has been made by
the offeror, as different types of offers have different types of legal rules being
applied to them. It is also imperative to distinguish an offer and an invitation
to offer, to avoid unwanted transactions.
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Introduction
Contracts play an important role in our everyday life ranging from insurance
policies to employment contracts. In Fact, we enter into contracts even without
thinking, for example, while buying a movie ticket or downloading an app. The
contract is oral or written agreements between two or more parties. Parties
entering into a contract might include individual people, companies, non-
profits or government agencies. The whole process of entering into a contract
starts with an offer by one party, an acceptance by another party, and an
exchange of consideration (something of value). Let us take a look at the
aspect of offer and acceptance.
Proposal or offer
• The entire process of entering into a contract begins with the proposal
or an offer made by one party to another. The proposal must be
accepted to enter into an agreement.
• According to the Indian Contract Act 1872, proposal is defined
in Section 2(a) as “when one person will signify to another person
his willingness to do or not do something (abstain) with a view to
obtain the assent of such person to such an act or abstinence, he is
said to make a proposal or an offer.”
Features of a valid offer

The person making the offer/proposal is referred to as the “promiser” or the
“offeror”. And the person who accepts an offer is referred to as “promisee” or
the “acceptor”.
•
The offeror must express his willingness to do or abstain from doing
an act. Only willingness is not adequate. Or just an urge to do
something or not to do anything will not be an offer.
• An offer can either be positive or negative. It can be a promise to do
some act, and can also be a promise to abstain from doing any
act/service. Both are valid offers.
The element of a valid offer

Here are some essentials which make the offer valid
There must be two parties

There have to be at least two parties a person making the proposal and the
other person agreeing to it. All the persons are included i.e, Legal persons as
well as artificial persons.
Every proposal must be communicated

Communication of the proposal is mandatory. An offer is valid if it is conveyed
to the offeree. The communication can either be express or implied. It can be
communicated by terms such as word of mouth, messenger, telegram,
etc. Section 4 of the Indian Contract Act says that the communication of a
proposal is complete when it comes to the awareness of the person to whom
it is made.
Example
‘A’ proposes, to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter,
the proposal communication is complete.
It must create Legal Relations

An offer must be such that when accepted it will result in a valid contract. A
mere social invitation cannot be regarded as an offer, because if such an
invitation is accepted it will not give rise to any legal relationship.
Example
‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social
invitation. And ‘A’ will not be liable if he fails to provide dinner to B.
It must be certain and definite

The terms of the offer must be certain and clear in order to create a valid
contract, it must not be ambiguous.
It may be specific or general

The specific offer is an offer that is accepted by any specific or particular
person or by any group to whom it is made. Whereas, The general offers are
accepted by any person.
Classification of offer
Some types of offers can be based on the design, timing, purpose, etc. Let us
look at the offer’s classification.
Express Offer
An offer may be made by express words, spoken or written. This is known as
Express offer.
Example
When ‘A’ says to ‘B’, “will you purchase my car for Rs 2,00,000”?
Implied Offer
An offer may be derived from the actions or circumstances of the parties.
This is known as Implied offer.
Example
There is an implied offer by the transport company to carry passengers for a
certain fare when a transport company operates a bus on a particular route.
General Offer
A general offer is not made by any specified party. It is one that is made by
the public at large. Any member of the public can, therefore, accept the offer
and have the right to the rewards/consideration.
Example
‘A’ advertises in the newspaper that whosoever finds his missing son would be
rewarded with 2 lakh. ‘B’ reads it and after finding the boy, he calls ‘A’ to
inform about his missing son. Now ‘A’ is entitled to pay 2 lakh to ‘B’ for his
reward.
Specific Offer
It is the offer made to a specific person or group of persons and can be
accepted by the same, not anyone else.
Example
‘A’ offers to sell his house to ‘B’. Thus, a specific offer is made to a specific
person, and only ‘B’ can accept the offer.
Difference between General Offer and

Specific Offer
General Offer Specific Offer
General Offer is made to the whole A specific Offer is made to some specific
world at large. person.
A general offer can be considered by A specific offer can be accepted by only a

any person. specific person.
Cross offer
Two parties make a cross-offer under certain circumstances. It means that
both make the same offer at the exact time to each other. However, in either
case, the cross-offer will not amount to accepting the offer.
Example
‘A’ and ‘B’ both send letters to each other offering to sell and buy B’s house at
the same time. This is the cross offer made where one party needs to accept
the offer of another.
Counter-offer
A counter-offer is an answer given to an initial offer. A counter-offer means
that the original offer has been refused and replaced by another. The
counteroffer offers three choices to the original offerer; accept, refuse, or
make another offer.
Lapses and revocation of an offer

• An offer lapses after a defined or reasonable time.
• An offer lapse by not being accepted in the specified mode
• An offer lapses by rejection.
• An offer lapses by the offeror or the offeror’s death or insanity until
acceptance.
• An offer lapses by revocation before acceptance.
• An offer lapses by subsequent illegality or destruction of the subject
matter.
When communication is complete

• Communication of offer (section 4)
The communication of the offer is complete when it comes to the knowledge
of the person to whom it is made.
Time of revocation of an offer

• Revocation of the offer (Section 4)
A proposal can be revoked at any time before the communication of its
acceptance is complete as against the proposer but not afterward.
Revocation of the offer by the offeror

The offeror can withdraw his offer before it is accepted “the bidder can
withdraw (revoke) his offer at an auction sale before being accepted by any
auctioneer using any of the customary methods.
Example
‘A’ agreed to sell the property to ‘B’ by a written document which stated “this
offer to be left over until Friday 9 AM”. on Thursday ‘A’ made a contract to sell
the property to ‘C’. ‘B’ heard of this from ‘X’ and on Friday 7 AM he delivered
to ‘A’ acceptance of his offer. Held ‘B’ could not accept A’s offer after he knew
it had been revoked by the sale of the property to C.
Acceptance
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When
the person to whom the proposal is made signifies his assent thereto, the offer
is said to be accepted. Thus the proposal when accepted becomes a promise.”
An offer can be revoked before it is accepted.
As specified in the definition, if the offer is accepted unconditionally by the

offeree to whom the request is made, it will amount to acceptance. When the
offer is accepted it becomes a promise.
Example
‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer. Now,
it has become a promise.
When an offer is accepted and it becomes promise it also becomes irrevocable.

No legal obligation created by an offer.
Types of Acceptance
• Expressed Acceptance
If the acceptance is written or oral, it becomes an Expressed Acceptance.
Example
‘A’ offers to sell his phone to ‘B’ over an email. ‘B’ respond to that email saying
he accepts the offer to buy.
• Implied Acceptance
If the acceptance is shown by conduct, It thus becomes an Implied acceptance.
Example
The Arts Museum holds an auction to sell a historical book to collect charity
funds. In the media, they advertise the same. This says that a Mere Invitation
to an Offer as per Indian Contract Act, 1872.
The invitees offer for the same. Offer is expressed orally, so the offer to buy
is an Express Offer, but by striking the hammer thrice the final call is made by
the auctioneer. This is called Implied Acceptance.
• Conditional Acceptance
A conditional acceptance also referred to as an eligible acceptance, occurs
when a person to whom an offer has been made tells the offeror that he or
she is willing to accept the offer provided that certain changes are made to the
condition of the offer. This form of acceptance operates as a counter-offer. The
original offeror must consider a counter-offer before a contract can be
established between the parties.
Legal Rules and Conditions for Acceptance
• Acceptance must be absolute and

unqualified
The offeree’s approval cannot be conditional.For example, ‘A’ wants to sell her
car to ‘B’ for Rs 2 lakh, ‘B’ can’t come back and says that she accepts the offer
but will buy the same for Rs. 1 lakh.
• Acceptance must be told to the offeror

If the acceptor just accepts the offer in his head and he does not mention the
same to the offeror, it can not be called an Acceptance, whether in an express
manner or an implied manner.
• Acceptance must be recommended in the

following mode
Acceptance is sometimes required in a prescribed/specified communication
mode.
• In a reasonable amount of time, the
acceptance is given
It’s very rare that an offer is always to get acceptance at any time and at all
times. Therefore, the offer defines a time limit. If it does not, it should not be
acknowledged forever.
Mere silence is not acceptance

If the offeree fails to respond to an offer made to him, his silence can not be
confused with acceptance. But, there is an exception to this rule. It is stated
that, within 3 weeks of the date on which the offer is made, the non-acceptance
shall be communicated to the offeror. Otherwise, the silence shall be
communicated as acceptance.
When communication is complete?

• Communication of acceptance (Section 4)
Communication of acceptance is complete when it is put in the course of
transmission to him as to be out of the power of the acceptor to withdraw the
same and when it comes to the knowledge of the proposer.
Time of revocation of acceptance

An acceptance may be revoked at any time, but not afterward, before the
communication of the acceptance is complete as against the acceptor.
Conclusion
Examination of offer and acceptance is a standard contract law method used
to assess whether a two-party arrangement exists. An offer is a sign of their
willingness to agree on certain terms from one person to another. If there is
an express or implied agreement, a contract will then be formed. A contract is
said to come into being when the acceptance of an offer has been told to the
offeror by the offeree.
===============================================
Types of agreements under
Indian Contract Act, 1872
Introduction
Agreements are one of the most important aspects of our day-to-day lives.
We enter into numerous agreements daily. These agreements are entered
into consciously or subconsciously. Under the law, agreements confer a
number of rights and obligations upon the parties. Thus, it is crucial to
understand the types of agreements, and what agreements may be
enforceable in a court of law in order to protect our rights and discharge the
obligations so as to avoid any legal action against ourselves.
Different types of agreements
Valid agreement
A valid agreement may be defined as an agreement that, if enforceable by
law, shall become a contract and make the parties to the agreement binding
to the conditions thereof. An agreement is defined under Section 2(e) of
the Indian Contract Act, 1872 (the Act). It states that “Every promise and
every set of promises, forming the consideration for each other, is an
agreement”. Thus, more than often, a valid agreement becomes a contract.
The essential conditions of a valid agreement include:
• The agreement shall have a valid consideration.

• The parties shall be competent to contract as per Section 11 and
Section 12 of the Act.
• The consent of the parties is free and uninfluenced.
• The object of the agreement is lawful.
Section 11 of the Indian Contract Act, 1872

Section 11 of the Act provides the conditions for the competency of the
parties to contract. To constitute a valid agreement, the parties shall be
competent. Every person who is a major as per the provisions of the Majority
Act, 1875, of a sound mind, and has not been expressly barred to enter into
a contract by the law, shall be competent to contract. Thus, an agreement
with a minor is not a valid agreement.

Section 12 of the Act provides that a sound mind for the purpose of a
contract shall mean to be the capacity of the mind to understand the
consequences of the agreement. A person who is of an unsound mind
usually, but is of sound mind at the time of entering in an agreement, such
agreement shall be a valid one. Similarly, a person who is usually of a sound
mind, but of an unsound mind, while entering an agreement, such
agreement shall be void.
Void agreement
A void agreement has been defined under Section 2(g) of the Act. It states
that “An agreement not enforceable by law is said to be void”. In addition to
the definition, the provisions of the Act declare certain agreements to be
void, as the objects of such agreements are unlawful. These agreements
include:
S.
Description Illustration
No.
Agreements of which consideration

A offers to purchase a lawful plot of land and an unlawful
or objects are unlawful in part as
1. parking space from B for a sum of Rs. 20 lakhs. The
mentioned under Section 24 of the
agreement shall be void as one of the objects is illegal.
Act
Agreements without consideration A, without any reciprocal promise, agrees to pay a sum of
2.
under Section 25 of the Act Rs. 5000 to B. This shall be a void agreement.
Agreements restraining marriage A restrains his daughter B to marry C, who is a physically

3.
under Section 26 of the Act disabled person. This shall be a void agreement.
A enters into an agreement with B to restrain B from

Agreements restraining trade establishing a competing business in his locality. This
4.
under Section 27 of the Act agreement shall be void as it puts a restraint on the trade of
B.
Agreements restraining legal

5. proceedings under Section 28 of the An agreement between A and B provides that any dispute
Act arising out of the course of the agreement shall be settled
mutually and neither of the two shall approach the Court.
This clause makes the whole agreement void.
Agreements with an uncertain A agrees to sell to B “a hundred tons of oil”. There is

6. meaning under Section 29 of the nothing whatsoever to show what kind of oil was intended.
Act The agreement is void for uncertainty
An agreement to pay a sum of money to either of the parties

Agreements of wagering
7. on the basis of winning or losing of a cricket team shall be
under Section 30 of the Act
deemed void.
Agreements to perform an A and B contract to marry each other. Before the time is
8. impossible duty under Section fixed for the marriage, A goes mad. The contract becomes
56 of the Act void.

As per the provision, if an agreement is entered into by the parties, and a
part of the consideration or object of the agreement is unlawful, then such
agreement shall be void. However, an exception to this notion is a derivative
form of the doctrine of severability. If a valid consideration or object of the
agreement can be severed from the invalid part, the performance of such
valid part shall be enforceable.
In the case of Bank of India Finance Ltd. v. Custodian (1997), BoI Finance
Ltd. had entered into agreements with its customers, which were found to be
violative of certain guidelines issued by the Reserve Bank of India. The
question before the Court was the validity of the contracts which have
already been executed. The Court upheld the validity of such agreements
and it was held that where the transactions arising out of an agreement, and
the agreement is found to be invalid, such transactions shall still remain
valid.

The provision provides that agreements without any consideration shall be
considered void agreements. However, the requirement of consideration is
an exception in certain cases. These exceptions have been provided under
Section 25 and can be understood as follows:
In a case where the promisor and the promisee have mutually agreed to
exclude consideration from their agreement, and such condition of the
agreement is provided in writing, duly stamped and registered under the law,
then such agreements shall not be void. It is pertinent to note that the
exception for the necessity of consideration in such cases shall be out of love
and affection between the parties. Additionally, an agreement without
consideration is a promise that is done to compensate for any prior deeds of
the promisee that have been done voluntarily, and shall not be void. Lastly,
an agreement that is a promise to pay, in full or in part, any payment to a
creditor any debt due, but such debt has been barred by limitation, such
agreement shall not be void.
In Rajlukhy Dabee v. Bhootnath Mookerjee (1900), the parties agreed to live

separately on the condition that the husband shall pay monthly maintenance
to his wife. It was a registered document in writing. The document also
contained certain disputes and disagreements between the parties. However,
the Calcutta High Court held that the agreement is a void agreement for the
reason that there was no love and affection between the parties.

Section 26 of the Act provides that every agreement, in any manner,
restraining a person to marry shall be void. Such restraint may be from
marrying any particular person, or a person from a certain class of persons,
or from marrying for a particular period or marrying at all. The only
exception to this provision is restraining a minor from marrying any person.
Such agreements shall be valid, as child marriage is itself a crime.
It is pertinent to note that only agreements restraining the parties from

marriage shall be void. In a case where certain rights of the parties shall
cease upon entering a marriage shall and has not been held to be void.

Section 27 provides that any agreement, restraining a person from carrying
on any profession, trade or business of his choice, shall be void. However, it
is not a straight-jacket rule applied to each case, rather it has an exception.
If an agreement is entered into by the parties, one of which is buying the
goodwill of another’s business, it may contain a condition where the buyer
shall not engage in a similar business as that of the seller.
In Madhub Chander v. Raj Coomer (1874), the facts included two rival
shopkeepers from a locality. The defendant, in this case, agreed to pay a
sum of money to the plaintiff if the latter did not operate his shop in the
same locality, to which he agreed. The defendant later refused to pay the
sum of money, and hence was sued by the plaintiff. The Court held that the
agreement was a void agreement, as it contained a provision for restraint of
trade or business. Thus, in India, any agreement restraining any trade or
business, either partially or completely, shall be void.
Section 28 of the Act provides that the agreements that restrict any of the
parties to seek legal remedies or restrain legal proceedings shall be
considered void agreements. However, there are exceptions provided by the
law, wherein the parties may be restrained from approaching the Court. The
first exception is an agreement with an arbitration clause. The second
exception includes questions that have already arisen. The third and final
exception to this provision is a guarantee agreement by a bank or a financial
institution.

Section 29 of the Act provides that the agreements, the meaning of which is
uncertain or cannot be ascertained, shall be considered as void agreements.
Agreements require specific and defined objectives in order to confer
definitive rights and obligations upon the parties. Any vagueness in an
agreement may act as a factor for rendering the agreement void.

Section 30 provides that all the agreements by the way of wager shall be
void. The term “wager” has not been defined under the provision. Hence, it
shall be according to the judicial precedents. In Carlill v. Carbolic Smoke Ball
Company (1892), Hawkins J. observed that “A wagering contract is one by
which two persons professing to hold opposite views touching the issue of a
future uncertain event, mutually agree that, dependent on the determination
of that event, one shall pay or hand over to him, a sum of money or other
stake; neither of the contracting parties having any other interest in that
contract than the sum or stake he will so win or lose, there being no other
real consideration for the making of such contract by either of the parties. It
is essential to a wagering contract that each party may under it either win or
lose, whether he will win or lose being dependent on the issue of the event,
and, therefore, remaining uncertain until that issue is known. If either of the
parties may win but cannot lose, it is not a wagering contract.”
Thus, the essential features of a wagering contract are the uncertainty of an

event, mutual chances of both parties to gain something, no control of either
party, and there shall be no other interest of the parties.
oWagering Agreements
Wagering Agreements is when the first party promises to pay the second
party on the occurrence of a certain event and the second party agrees to
pay to the first party on the event not happening. It is between two parties
of rational mind who understand they shall get profit or that shall face loss.
As stated above, all wagering agreements fall under Section 30 and they are
considered void. An example of a wagering agreement is the following. A and
B agree with each other that if a ball hits a pot, A will pay Rs. 100 to B and if
the ball does not hit the pot, B will pay A Rs. 100. Such an agreement is a
wagering agreement and hence is void.
In order for a wagering agreement to be considered so, the following

elements should be present.
1. Both parties should have an equal opportunity to win or lose.

2. The event the wager is done on should be out of the control of both
the parties.
3. The only interest of the parties to enter the agreement should be to
win or lose. No other motive should be present.
4. The wager agreement is fully dependent upon the happening of the
futuristic event.
5. There should be a promise made by both the parties to pay the
money or the consideration according to the conditions of the
agreement.
Contingent Agreement
Contingent Agreements are under Section 31. Unlike wager agreements,
they are valid contracts. Contingent agreements shall be executed on the
basis of a promise which is contingent on the happening or non-happening of
an uncertain future event. For example, A promises B to pay Rs 2000 in case
there is water damage to A’s house. The essentials of this agreement are
stated below.
1. There must be a valid contract to do or abstain from doing

something.
2. The condition for which the contract has been entered into must be
a future event, and it should be uncertain.
3. The event on which the agreement is based should not be a part of
the collateral.
4. The event should not be dependent on the promisor.
Despite being very similar in nature, contingent and wagering agreements
are very different in nature.
Contingent Agreements Wagering Agreements

A contingent agreement is valid. A wagering agreement is void
In a contingent agreement, the future uncertain In a wagering agreement, the entire agreement is
event is merely collateral. based on an uncertain event.
In a contingent agreement, the parties have a real In a wagering agreement, there is no interest in the
interest in the happening or non-happening of the event. There is merely an interest in gaining or
event. losing profit.
Not all contingent agreements are wagering

All wagering agreements are contingent contracts
agreements.
Voidable agreement
A voidable agreement may be defined as an agreement that may be revoked
by either of the parties to the agreement due to various legal reasons. Such
an agreement, when enforceable by law, shall be termed as a contract
voidable at the option of a party.
Section 19 of the Act provides that where the consent of a party has been
procured by either coercion, misrepresentation or fraud, such party shall
have an option to retaliate from the agreement as and when it deems fit.
Similarly, under Section 19A, when the consent of a party to an agreement is
obtained through undue influence, such a party has an option to revoke the
agreement and has an option to set aside the contract completely.
Section 53 of the Act provides that “When a contract contains reciprocal

promises, and one party to the contract prevents the other from performing
his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any
loss which he may sustain in consequence of the non-performance of the
contract.”
In addition to the above-stated situations, where the promisor fails to

perform his duty, as per the agreement of which time is an essential
condition, within the stipulated time, then the agreement is voidable at the
option of the promisee.
Difference between void and voidable agreements

Void Agreements Voidable Agreements
Considered invalid from the start. Declared invalid by the parties later on due to certain reasons.
Invalid at face value. Valid at face value.
No performance is possible. Performance is possible until declared invalid.
It is non-existent and cannot be upheld It is an existing agreement and is binding to one party
by any law. involved in the contract.
Express and implied agreements

As stated above, an agreement may be defined as a promise coupled with
consideration. Section 9 of the Act provides the meaning of express and
implied promises. It states that any promise made through words by the
parties shall be considered as an express promise, and any promise made
other than words shall be considered as an implied promise. Thus, an
express agreement shall be an agreement wherein the promise is express,
and an implied agreement shall be an agreement wherein the promise is
implied.
Illegal Agreements
Any agreements against the provisions of the law in force in India shall be
considered an illegal agreement. Either of the two conditions, illegal object or
illegal consideration, shall render the agreement illegal. Even if the content of
an agreement compels the parties to perform an illegal act, it shall be an
illegal agreement.
The difference between illegal and void agreements is that the latter is not
necessarily against the provisions of the law in force, while the latter is
explicitly against the provisions of the law. In other words, every illegal
agreement is a void agreement, while every void agreement is not an illegal
agreement.
Conclusion
The various types of agreements described under the Indian Contract Act,
1872, are very crucial and important in the day-to-day lives of each and
every person. An understanding of the types of agreements shall help one
protect his rights and discharge his duties in accordance with the law.
Moreover, it is pertinent to note that an agreement should only be entered
into by a person if such agreement is enforceable in a court of law. The
courts have, time and again, rejected to provide relief to the parties stating
the non-enforceability of the agreements.
===============================================
UNIT - 2
All about essentials of valid

consideration
Introduction
Consideration is the price paid for a promise. As per Section 10 of the Indian
Contract Act 1872, an agreement without consideration is void, subject to
certain exceptions under Section 25, as consideration is one of the essentials
of a valid contract. A contract supported by consideration makes it legally
enforceable and makes the obligations of the parties binding upon them. In
the absence of consideration, such an agreement would be merely a
gratuitous one and not legally enforceable. Consideration can be to the
benefit of one party and to the detriment of the other. In the words of
Pollock and Mulla, “Consideration is the act, forbearance, or promise done or
given at the request of the promisor to any other person.” The detriment of
one party is sufficient even if the promisor is not benefited from the promise.
It is the price for which the promise of the other is bought. Consideration, in
order to be valid, must be real, substantial, and adequate.
Consideration as per Section 2(d) of the

Indian Contract Act, 1872
Consideration, as given under Section 2(d) of the Indian Contract Act, 1872,
defines it as “when at the desire of the promisor, the promisee or any other
person has done or abstained from doing something, does or abstains from
doing or promises to do or to abstain from doing something. Such an act,
abstinence or promise is called a consideration for the promise”. In order to
understand the definition of consideration, one must try to study its
essentials which are embedded in the above-mentioned definition.
For example, A enters into a contract with B that he will sell his car to B for
Rs 10,00,000. Here, the consideration for B is the car, whereas the
consideration for A is the sum of money received.
A enters into a contract with B that B shall provide him with the services of
moving his office to a new place, for which A shall provide him with Rs
20,000. Here, the consideration for B is the sum of money, whereas the
consideration for A is the services offered by B.
Nature of consideration
The nature of consideration can be of two types. They are:
Unilateral consideration
The contracts under which the promisor offers to pay only after the
occurrence of a specified event. In other words, the promisor is willing to pay
for the promise. Under unilateral consideration, it moves only in a single
direction. Under such a contract, only the promisor is legally bound to fulfil
his promise within the prescribed time duration. For example- Mr Raj lost his
dog and makes an offer to Mr Rahul to find his lost dog for which he would
pay him Rs. 100. Mr Rahul is under no obligation to accept the offer and it is
up to him to accept it or not.
Bilateral consideration
The contract where both parties are under an obligation to fulfil their
respective promises is known as bilateral consideration. Here, the parties
involved must be at least two, unlike that of a unilateral consideration where
only the promisor is bound to fulfil his promise. Under such contracts,
consideration moves in either direction. For example- a sale agreement
where the seller enters into a contract with the purchaser to transfer the title
of the car to him upon receiving consideration for the same within the
prescribed time duration.
Essentials of consideration
Consideration can only be moved at the desire of

the promisor
For valid consideration, it should be moved only at the desire of the promisor
and no one else. A voluntary act by the promisee or at the occurrence of
some third party would not amount to a valid consideration as it was not
done at the request or desire of the promisor. For example, A’s house caught
fire, and he requested B to help him put off the fire by bringing some water,
for which he would provide him with Rs 500. It is a case of valid
consideration as the consideration was moved at the desire of the promisor.
It was held in the case of Durga Prasad v Baldeo (1880) that since the
consideration was not moved at the desire of the promisor, it did not
constitute a valid consideration. It was held in the case of The Municipal
Corporation of…v. The Secretary of State for India (1932) that the subscriber
was fully aware regarding the purpose of the subscription and also that a
duty to pay the contractor for his work was based on the subscription.
Therefore, in the present case, the act of the promisor in entering into a
contract with the contractor is said to be made at the desire of the promisor.
Consideration by promisee or any other person

Consideration can be provided either by the promisee or any other person,
but the condition that needs to be satisfied is that it should be moved at the
desire of the promisor only. According to English law, the rule is somewhat
different, as under English law, consideration can only be moved by the
promisee and no third party who is a stranger or who is not a party to the
contract can move the consideration. It was held in the case of Tweddle v.
Atkinson (1861) that no case could be made out as the consideration was not
moved by the husband, who was the promisee. Under Indian law, a person
can bring an action even though the consideration might have been moved
by a third party. It is a general rule that a stranger who is not a party to the
suit can sue if the contract is for his enjoyment. Thus, under English law, a
third party cannot initiate action for the same, but under Indian law, a
stranger who may not be a party to the contract can also enforce the
contract against the promisee.
For example, If A purchases a watch from B, but instead of A paying him the
consideration, C makes the consideration. This it is a valid contract as per
Section 2(d) of the Indian Contract Act, as it says that the consideration can
be made by the promisee or any other person. It was held in the case
of Chinnaya v Ramaya (1882) that it is not binding that the consideration has
to be made by the promisee only. It was held in the case of S. Premalatha v.
Mysore Minerals Ltd. and Anr. (1992) that Section 2(a) of the Indian Contract
Act 1872, includes the words ‘promisee or any other person’, which means a
stranger to a contract can sue. It was also held by the Karnataka High Court
in the present case that where the statute lays down clearly who can give
consideration, no precedent is required for the same.
Privity of contract
The doctrine of privity of contract lays down the fundamental rule that only
parties to the contract can bring an action to enforce such a contract. Though
a third party may be interested in the contract, he cannot initiate an action
for the same. There has to be a relationship existing between the parties that
bestows certain rights and obligations arising out of it. The rule of privity of
contract applies equally to both India and England. The rule of privity of
contract has to be distinguished from the rule that a contract can be enforced
either by the promisee or any other person. This rule does not affect the rule
of privity of contract. Under the Indian Contract Act 1872, there is no
provision for or against the rule of privity of contract, but the rule laid down
in the case of Tweddle v. Atkinson applies to the cases of India as well. It
was held by the Privy Council in the case of Krishan Lal v Pramila Bala Dassi
(1928) that clause(d) of Section 2 of the Indian Contract Act 1872, widened
the scope of the definition of ‘consideration’ to enable a person not a party to
the contract to enforce it, which if it had been under English Law, would have
rendered that party as a recipient of the purely voluntary promise and such a
party would not be entitled to bring an action on the ground of Nudum
Pactam. According to Section 2 of the impugned Act as well, a person who is
not a party to the contract cannot sue. Moreover, the definition of ‘promisor’
and ‘promisee’ precludes this perception. Under Indian law, it would be
wrong to assume that people who are not parties to the contract can sue. It
was held in the case of Utair Aviation v. Jagson Airlines Ltd. & Another
(2012) that though privity of contract exists in India from time to time, a
number of exceptions to it have evolved according to which a stranger who is
not a party to the contract can sue, that is, if he is a beneficiary, a trustee,
or a third party. The exceptions are not exhaustive.
For example, If A and B entered into a contract that binds both parties to
fulfil their respective obligations, and if any of the parties fail to perform their
part, only the parties to the contract can sue each other and no third party
can initiate an action for the same.
Exceptions to privity of contract

Under a contract, only parties can sue each other, but with time, the courts
have devised a number of exceptions for protecting the interests of the third
party who is not a party to the contract:
Beneficiary under a contract

When two parties enter into a contract with the intent of creating a charge in
favour of a third party who is the beneficiary of some specific immovable
property, then if either party fails to perform his part of the obligations, the
beneficiary can enforce his right. The Privy Council has recognised this
exception in the case of Nawab Khwaja Muhammad Khan v. Nawab Hussaini
Begum (1906)
Marriage, partition or family settlement
Where an agreement is entered into in the interest of the beneficiary
regarding a marriage settlement, partition or family settlement, such a
beneficiary can enforce such agreement even though he or she may not be a
party to the contract. Section 15(c) of The Specific Relief Act 1963, enables
the specific performance of the suit for entitlement of the beneficiary and
therefore, forms an exception to the rule that a stranger to a contract cannot
sue. It was held in the case of Shappu Ammal v Subranarayan (1909) that
the mother, though not a party to the contract, was entitled to receive equal
shares of maintenance from both of her sons.
Acknowledgement of a liability
Where a person is under an obligation to make a payment to a third party
and he acknowledges it to that third party through his conduct, part payment
or estoppel. The third-party can enforce the impugned contract as it is based
on the principle of the law of estoppel.
Covenants running with the land

Where a person has purchased land with a notice that the owner is bound by
certain duties affecting the land, he shall be bound by those duties even
though he might not have been a party to the contract. In the case of Steel
Authority of India v. the State of MP (1999), it was held that the right of
exemption from paying land revenues by the undertaking would be similar to
that of the Central Government.
Statutory exceptions
Under certain circumstances, the statute provides protection for the third
party even though he might be a stranger to the contract but can still avail of
that advantage. For example- an insurance company bears all the risks of
the third party in the event of a motor vehicle accident.
Consideration can be past, present or future

(types of consideration)
Past consideration
When the consideration is made prior to the promise and the promise is
made subsequently, it is called past consideration or executed consideration.
Under such a type, consideration induces the promise and is made after an
act has been done in the past without the other party making a promise by
the other party. A Promise for consideration is made for an act already done
in the past so as to motivate the promisor to subsequently pay the
consideration for the impugned act. For past consideration, the promisor
does not expect anything in return for an act or obligation, already
performed. Past consideration is more likely a moral obligation and in most
cases, it is not legally required. Generally, such an obligation of past
consideration cannot be enforced until a material benefit is involved for the
promise of the benefit that was made after consideration. For example, if A
asks B to find his lost dog, after which he will give him Rs 500, It is a valid
example of past consideration or executed consideration. In the case of M/S
Atma Ram Properties Pvt Ltd v. M/S Federal Motors Pvt Ltd (2004), the
Supreme Court held that where a decree for eviction of the tenant has been
passed. The tenant is entitled to pay the mesne profits or compensation for
the use and possession of the concerned premises at the same rate at which
the landlord would have released the premises to some other person if the
impugned tenant had vacated. Moreover, the landlord is not bound by the
contractual rate of rent until the proceeding at a superior forum on the same
issue continues.
Executed consideration
Every contract is based on the performance of an act. An act forms
consideration for the promise. When the consideration is constituted
simultaneously with the promise, it is called an executed consideration.
Executed consideration involves an act for a promise. The act stipulated
exhausts the consideration so that no new act would be performed until
further consideration is made. Under such contracts, the performance of one
of the parties is completed, and it is only the other party that is yet to
perform his part of the promise. Both acts and promises forming
consideration are essential and correspond to the same transaction. It was
held in the case of Mohammad Ebrahim Molla v. Commissioners (1926) that
the absence of a tinder seal in a contract of executed consideration does not
nullify it but where it is expressly provided, this exception does not even
apply to executed consideration in a contract.
For example – A is a shopkeeper from whom B purchases some stationary

and B in return pays the consideration for the same. Here, both the parties
have performed their part of the obligations and thus it is executed
consideration or present consideration.
Executory consideration
When parties to a contract agree to execute an agreement on a future date,
in other words, when the promisor makes an offer to the promisee that
would take place on a future date and the promisee in return accepts that
offer and promises to pay for it at a future date, it is executive consideration.
Under such contracts, the performance of the obligations by each of the
parties is to be made ensuing to the making of the contract. Under an
executory consideration, one promise is exchanged for another promise. In
other words, the liability is outstanding on both sides. Valid promises from
both sides conclude a contract. Therefore, under such contracts rights and
liabilities are outstanding on both sides. It was held in the case of The
Municipal Corporation of the…v. The Secretary of State for India (1932) that
executory promise includes two promises which are also called mutual
promises. One promise is a consideration for another, and contrarily.
For example, A promises to deliver certain goods to B on a future date, B, on

the other hand, promises to pay the consideration on a future date as well.
An act, abstinence or promise by the promisee

forms consideration
According to Section 2(d) of the impugned Act, in order to constitute
consideration for a promise, an act, abstinence that is restraining from doing
something or a promise by the promisee needs to be made. If there were no
acts, abstinence, or promises there would be no consideration. In the case
of Muhammad Kutty v. Dhanya (2022), the Kerala High Court held that in the
present case, the question before the court is not whether the plaintiff has
paid the balance scale consideration within the stipulated time or not. In the
view of the court it is not necessary that the plaintiff pay the full amount;
what matters is the willingness to pay the consideration. Therefore, the
plaintiff was not ready and willing to perform his part of the obligations.
Moreover, the defendant was also not justified in paying the cost of the suit
for the specific performance of the contract.
Consideration needs to be adequate

While dealing with the adequacy of consideration, courts do not enquire
regarding the adequacy of the consideration but about its sufficiency if the
matter comes before the court of law. It is up to the consent of the parties to
decide what should be the consideration after bargaining and negotiating for
an agreement involving the two parties. Consideration should be a
reasonable equivalent in the eyes of the law. The adequacy or inadequacy of
consideration is not a legal base as per Section 25(2) of the Indian Contract
Act, but where the question is regarding the free consent of the promisor in
deciding the consideration the courts can take into account the adequacy of
consideration if in its opinion there is a fraud, misrepresentation, conjunction
etc as a factor for determining the same. In the case of Vijay Minerals Pvt ltd
v. Bikash Deb (1995) the Court held that it would not enquire concerning the
adequacy of consideration when the question is whether an agreement is
binding or not. In the case of K Kumara Gupta v. Shri Omkareswara Swami
Temple (2022), the Supreme Court held that where a public auction has
taken place and the sale is effected in the favour of the highest bidder, no
subsequent offers made by any third party would be taken into consideration
so as to set aside the impugned sale. It could be only done if there was an
inadequate consideration offered due to fraud, collusion, misrepresentation,
etc, or if there was any material irregularity in conducting the public auction.
Consideration should be real

Consideration as per the Indian Contract Act of 1872 should be real and
significant. In other words, consideration should be physically real and should
not be deceptive or legally impossible. It was held in the case of Leelamma
Ambikakumari & Anr v. Narayanan RamaKrishnan (1991), that it is always
permissible to prove that consideration in a document was not a real
consideration but something different.
Physically real means something that can be done practically. For example- A
makes an offer to B to walk for 200 km in 10 minutes. Such an offer is unreal
as it is practically not possible.
Legally impossible means something which is prohibited by law. For example-

A makes an offer to B to commit robbery in the house of C for which he
would pay a consideration of Rs 10,000 to B. Here, the offence of robbery is
prohibited by law.
Consideration should be legal

According to Section 23 of the Indian Contract Act of 1872, consideration
should not be illegal, immoral, or opposed to public policy. It was held in the
case of Rai Bahadur H P. v. Commissioner of Income Tax (1940), that the
task of the courts is to examine whether the consideration is good and legal
in a case.
Performance of a pre-existing duty is not

consideration
The legal duty of a person cannot be regarded as a consideration in the eyes
of the law. As consideration requires a person to do something more than
which he is already compelled to perform. Consideration must originate from
a new obligation.
Promise to pay less than the amount due

A promise to pay less than the amount due was not considered a good
discharge. It was held in the famous Pinnel’s case that the debtor was bound
to pay the whole amount, but if the debtor gifted a horse, hawk, robe, etc., it
would be considered a good consideration. The courts, over a period of time,
have accepted a number of exceptions for Pinnels’s rule:
Part-payment by a third party

When the creditor accepts part payment of the money due to him by the
debtor in place of a larger sum of money, he cannot afterwards maintain an
action for the same.
Compromise
When the parties enter into a compromise agreement regarding accepting a
lesser amount of money instead of the larger sum due.
Payment before time

Sometimes, the payment before time in a different mode or different place
than what was agreed by the parties is valid.
Promissory estoppel
When a promise is made in the future with the intention of being acted upon
and is actually acted upon then it is binding and the parties cannot alter their
positions afterwards. The rationale behind the doctrine of promissory
estoppel is to protect the interests of the people who rely upon such
promises from any injustice. The doctrine of promissory estoppel is an
evacuation from the doctrine of consideration.
Consideration for charitable purposes

In exchange for a promise, one cannot rely on the promise made by the
other party that he would make up for the consideration by giving them an
amount for charity purposes. Such contracts are not enforceable in the eyes
of the law. If the consideration depends upon the faith of the promise or
some obligation is incurred by it, the agreement is enforceable.
Exceptions when agreements without
consideration are not void
As per Section 25 of the Indian Contract Act 1872, an agreement without
consideration is void except under the following circumstances:
Arising out of natural love and affection –

Section 25(1)
When an agreement is made without consideration that has arisen out of
natural love and affection between the parties having close relations amongst
them, such an agreement is valid even though it is not backed by
consideration. The essentials that need to be satisfied are:
• The parties should be in close relations with each other, that is

either through blood relations or marriage.
• The promise should have arisen out of natural love and affection.
• The promise should have been made in writing and registered as per
the law relating to registration enforced in the territory.
It was held by the Calcutta High Court in the case of Rajlucky Dabee v
Bhootnath Mookerjee (1900) that as the agreement in question did not arise
out of natural love and affection, it is was an invalid agreement. In order to
attract the exception under Section 25(1), the concerned agreement must be
borne out of natural love and affection between close relations. In the case
of Ranganayakamma & Anr v K.S.Prakash (2008), the court held that in the
present case, for a partition deed to be hit by Section 25 and be void, it
needs to be acknowledged in the documents that it arose out of natural love
and affection. Moreover, no issues were framed, no evidence was produced,
and no objections were raised at the trial stage. Therefore, the validity of the
partition deed could not be questioned and was not void per se.
Past voluntary services (Section 25(2))

According to Section 2(d) of the Indian Contract Act 1872, consideration can
only be advanced at the desire of the promisor. When a person voluntarily
furnishes his services without any promise or desire for the same by the
other party, it falls under the ambit of Section 25(2), which is an exception
to the rule that an agreement without consideration is void. As per Section
25(2) of the Indian Contract Act 1872, an agreement where a promise has
been made to compensate wholly or in part for the services voluntarily
furnished in the past, such an agreement is valid though not supported by
consideration. It must be kept in mind that the voluntary services furnished
are for the promisor only and nobody else. The promisor must have been in
existence and competent at the time when the past services were voluntarily
rendered. Moreover, the intention of the promisor must be to compensate
the promisee rather than embracing any other motive for the same. For
example, A finds B’s purse, which was lost. B promises to compensate A by
giving him Rs 100.
It was held in the case of Donngaramal v Shambhoo Charon Pandey (1964)

that a promise was made regarding the maintenance of a woman for her past
voluntary services which she rendered and a promissory note concerning it
was found to have been written by the promisor. Such a promise would be a
valid one.
Promise to pay time-barred debt (Section 25(3))

A promise made without consideration for a time-barred debt is not
enforceable as per the law of limitation but is a valid promise as it falls under
the exceptions given in Section 25(3) of the Indian Contract Act 1872.
Section 25(3) permits the promisee to pay wholly or in part the time-barred
debt. The promisee can only be made liable for the part for which he has
promised to pay and not the whole, except where he has promised to pay the
whole. The debt must be such that the creditor might have enforced it but
due to the restriction imposed by the law of limitation, he could not. The debt
must be due to the promisor. Moreover, it must be in writing and signed by
the debtor and his agent. It should be an express promise rather than a
mere acknowledgement of the same. The impugned promise should also be
unconditional. It was held in the case of Tulsi Ram v Same Singh (1981) that
the mere acknowledgement of an endorsement is not enough; rather it
should be such that it shows that the defendant intended to pay the time-
barred debt.
Recent case laws
M/S Prestige Estates Projects v. Assistant

Commissioner of Income (2021)
Facts of the case

• The assessee is a company that carries out the business of real
estate development. It entered into joint agreements with 54
parties relating to the construction of the land.
• The particular agreement under the present case was entered
between the assessee, that is, the M/S Prestige Estates Projects,
and the landowners for the construction of an area of 11 acres of
land for the construction of a residential area, including areas for car
parking, terraces, private areas, etc.
• The terms of the agreement, included that the assessee shall build
up an area(31.66%) in return for consideration of 64.34% of land
which will be transferred to it by the landowners.
• As per the agreement, the assessee has paid an amount of Rs
21,85,00,000 as a ‘refundable security deposit’ which is interest-
free.
• The ‘refundable security deposit’ was to be paid after 18 months
from the date of the initiation of construction. The impugned sum of
money can also be recovered by the sale of the constructed area of
landowners.
• The Assessing Officer passed an order where it was held that the
assessee had failed to deduct taxes as per Section 194 of the
Income Tax Act 1961.
• The Assessing Officer also held that the ‘refundable security deposit’
constitutes consideration as per Section 2(d) of the Indian Contract
Act 1872, as the impugned Act does not define the term
‘consideration’ within it.
• The assessee made an appeal against the impugned order before
the tribunal.
Judgement of the court

The Income Tax Appellant Tribunal held that as ‘consideration’ is not defined
under the Direct Taxes Legislation, the same meaning as given under Section
2(d) of the Indian Contract Act 1872, would be taken into consideration. The
tribunal also held that the value of the constructed area that had to be
transferred to the assessee was 31.66% which was the consideration for the
transfer of 68.36%, of land that was accepted by the landowners. The
‘refundable security deposit’ is a part of the sale consideration for the
transfer of immovable property. The tribunal held that the assessee was not
in default in paying the taxes as per Section 201(1) and Section 201(1)(a) of
the Income Tax Act 1961.
Mr. Raghunath M.G.v. Sri D.N. Badriprasad (2021)
Facts of the case

• The accused and the complainant were acquaintances of each other.
• The accused, in October 2013, requested the complainant to lend
him a loan of Rs 9,00,000 to fulfil his certain immediate financial
needs.
• The complainant lent the accused a loan of the impugned sum of
money by withdrawing some cash from his bank account by means
of selling his property on the promise that the accused would repay
the loan within three years from the date of receiving the concerned
loan.
• Subsequent to the period of three years, the complainant
approached the accused of the repayment of the relevant money, to
which the accused pleaded for some more time.
• Subsequently, the accused sent two post cheques of Rs. 4,00,000
and Rs. 5,00,000 respectively.
• The complainant tried to encash them but it showed ‘insufficient
balance’. The complainant sent a notice for the same to the
accused.
• The accused replied by contending ‘no claims’.
• The complainant filed a complaint about the same against the
accused.
Judgement
The court held that, as per Section 25 of the Indian Contract Act 1872, an
agreement without consideration is void except for the exceptions provided
under the impugned section. The court held that as per the deposition of the
prosecution witnesses, where a suggestion was made to the accused that to
repay a loan transaction, the limitation period was for three years, which the
accused ignored. Another witness also deposed that the accused had
provided a cheque in the favour of the complainant in 2017. These
depositions lead to the conclusion that it is a time-barred debt that cannot be
recovered from the complainant. The court also held that there was no
express promise made to give a fresh period of limitation and it is a well-
settled law that an implied promise is not considered. There was neither an
acknowledgement of the debt by the accused in the favour of the
complainant within the first three years of the time period, which means it is
a time-barred debt, nor any express promise was made in writing. Hence,
the accused was acquitted.
Conclusion
Consideration is the price of a promise made by the other party. Something
such as an act, abstinence, or promise to do or abstain from doing something
at the request or desire of the promisor by the promisee or any other person
constitutes consideration for the promise. A valid Consideration needs to be
significant, adequate, unconditional to be valid. Consideration must be a real
one in the sense that it should not be impractical or legally impossible.
Consideration must be moved at the desire of the promisor only and nobody.
It has to be given by the promisee or any third party, whereas under English
law, consideration can only be moved by the promisee. The types of
consideration are past, present, and future. The law does not recognise
consideration for charitable purposes and it is unenforceable in the eyes of
the law. Consideration should always originate from a new obligation, as
consideration from a pre-existing duty is not enforceable. An agreement
without consideration is void, but there are certain exceptions incorporated
under Section 25, such as promises arising out of natural love and affection,
past voluntary services, promises to pay a time-barred debt, etc, under
which an agreement without consideration is valid.
Capacities of Parties entering

into a Contract
Introduction
Almost every transaction around us is a result of a contract. When you buy
vegetables from the seller, you promise to pay him money in exchange for
vegetables. If you own a shop, you enter into two contracts; one with the
manufacturer of the goods and second with the customer who will buy the
goods from your shop.
While buying vegetables we might not pay attention as to whether the seller
is competent enough to enter into a contract. However, if you are a
shopkeeper, you need to check and be sure that the manufacturer is legally
capable of doing so. This becomes important for you to hold the manufacturer
legally liable for any defaults committed by him during the terms of the
agreement.
Legal requirements for a person entering

into a contract
Sec.11 of the Indian Contract Act, 1872 lists down the qualifications which
enable a person in India to enter into contracts-
• A person should have attained the age of majority as per the law of
the country of which he is a citizen.
In India, the age of majority is governed by the Indian Majority Act, 1875. As
per Sec. 3 of the Indian Majority Act, 1875, an Indian citizen is said to have
attained the age of majority upon completion of eighteen years of age. In the
USA (the majority of the states) and the UK, the age of majority is 18 years
as well.
However, if a person is below the age of 18 years and a guardian has been
appointed for him, he shall attain majority at the age of 21 years.
• A person should be of sound mind at the time of entering into a

contract.
As per Sec. 12 of the Act, a person can be said to be of sound mind when he
can assess, understand his actions and realize the consequences of obligations
imposed on him at the time of entering into a contract.
• A person should not be disqualified under any law to which he is

subject.
Disqualifications for entering into a contract

As per the Indian Contract Act, 1872 all persons who do not meet the criteria
as per Sec. 11 of the act are incompetent to contract. Hence, we can deduce
that the following category of persons do not possess the legal capacity to
enter into a contract-
Minor
In India, a minor is an Indian citizen who has not completed the age of
eighteen years. A minor is incapable of understanding the nature of the
liabilities arising out of an agreement. Hence a contract with a minor is void
ab initio (void from the beginning) and cannot be enforced in a court of law.
The result is that a party cannot compel the minor to perform his part of
obligations as enumerated in the agreement (plead specific performance of an
agreement/rule against estoppel).
Mohori Bibee vs. Dharmodas Ghose

1. The respondent, Dharmodas Ghose, a minor, had mortgaged his
property in favor of the moneylender, Brahmo Dutt for securing a loan
amounting to INR 20,000/-.
2. Mr. Brahmo Dutt had authorized Kedar Nath to enter into the
transaction through a power of attorney. Mr. Kedar Nath was
informed of the fact that Dharmodas Ghose was a minor through a
letter sent by his mother.
3. However, the deed of mortgage contained a declaration that
Dharmodas Ghose was of the age of majority.
4. The respondent’s mother brought a suit on the ground that the
mortgage executed by his son is void on the ground that her son is a
minor.
5. The relief sought by the respondent was granted and an appeal was
preferred by the executors of Brahmo Dutt before the Calcutta high
court. The same was dismissed.
6. An appeal was then made to the Privy council. The Privy council held
that-
a. A contract with a minor is void-ab-initio.
b. Sec.7 of the Transfer of Property Act, 1882 states that a
person competent to contract is competent to transfer a
property.
c. Hence, the mortgage executed by the respondent is void.
However, if a minor enters into a contract and performs his part of obligations,
the other party can be compelled to perform and fulfill its obligations, and, in
such instances, the contract becomes legally enforceable.
A.T Raghava Chariar vs. O.A. Srinivasa Raghava Chariar

1. A minor entered into a contract for mortgage with a person of the age
of majority.
2. The minor extended the monetary amount and performed his part of
the obligations.
3. The other party refused to honor the agreement.
4. The full bench of the Madras High court had to decide “whether a
mortgage executed in favour of a minor who has advanced the whole
of the mortgage money is enforceable by him or by any other person
on his behalf.”
5. The court ruled that-
a. The agreement sought to be enforced is the promise of the
mortgagor who is of full age to repay the money advanced
to by the mortgagee.
b. The mortgagee (the minor) has already advanced the money
which was the consideration for the promise of the
mortgagor and performed his part of the obligations. There
is nothing pending from his side.
c. Hence, the contract is enforceable.
Additionally, a minor cannot enter into a contract and provide his consent when
he attains majority. This is because a minor’s agreement is void from the
beginning. A void agreement cannot be made legally valid by ratification.
Suraj Narain Dube vs. Sukhu Ahir

1. Suraj Narain lent money to Sukhu Ahir who was a minor. The minor
executed a promissory note against the money borrowed.
2. After four years, when the minor attained majority, he and his mother
executed a second promissory note in favour of Suraj Narain in
respect of the original loan plus the interest accumulated over the
years.
3. The court held-
1. The first agreement entered into by the parties is void as a
minor is incompetent to contract. The minor had no liability
to pay under this agreement. However, the minor made a
promise and provided the promissory note, amounting to
consideration.
2. A minor has no power to ratify the contracts entered into by
him upon attaining the age of majority.
3. In the second agreement executed by the parties, there was
no consideration from the Plaintiff. The original advance was
no consideration for a second agreement. The second
agreement is void due to want of consideration.
In certain instances, a contract entered into by the minor or by the minor’s
guardian for his benefit is valid in the eyes of law-
1. A contract for marriage entered into by a minor/his guardian.

2. A partnership contract entered into with a minor admitting him to the
benefits of a partnership. However, the minor cannot be held
personally liable for the losses incurred.
3. A contract relating to the minor’s property entered into by his
guardian if it is for the benefit of the minor.
4. A contract of apprenticeship with a minor.
5. A contract supplying the minors with goods and services necessary
for life.
Websites such as YouTube expressly mention in their terms and conditions
that any minor while using its services represents that he has the permission
of his parent/ guardian to do so. Parents and guardians are held liable for the
child’s activity on such websites.
Person of unsound mind

• Idiots- An idiot, in medical terms, is a condition of mental retardation
where a person has a mental age of less than a 3-year-old child.
Hence, idiots are incapable of understanding the nature of the
contract and it will be void since the very beginning.
• Lunatic- A person who is of sound mind for certain duration of time
and unsound for the remaining duration is known as a lunatic. When
a lunatic enters into a contract while he is of sound mind, i.e. capable
of understanding the nature of the contract, it is a valid contract.
Otherwise, it is void.
Illustration- A enters into a contract with B for sale of goods when he is of
sound mind. A later becomes of unsound mind. The contract is valid.
• People under the influence of the drug- A contract signed under the
influence of alcohol/drug may or may not be valid. If a person is so
drunk at the time of entering into a contract so that he is not in a
position to understand the nature and consequences, the contract is
void. However, if he is capable of understanding the nature of the
contract, it will be enforceable.
Illustration- A enters into a contract with B under the influence of alcohol. The
burden of proof is on A to show that he was incapable of understanding the
consequence at the time of entering the contract and B was aware of his
condition.
Persons disqualified by law

• Alien enemy- An alien enemy is the citizen of a country India is at war
with. Any contracts made during the war period with an alien enemy
are void. An Indian citizen residing in an alien enemy’s territory shall
be treated as an alien enemy under the contract law. Contracts made
before the war period either gets dissolved if they are against public
policy or remain suspended and are revived after the war is over,
provided they are not barred by limitation.
Illustration- A, of country X, orders goods from B, of country Y. The goods are
shipped and before they could reach Y, country X declares a war with country
Y. The contract between A and B becomes void.
• Convicts- A convict cannot enter into a contract while he is serving

his sentence. However, he regains his capacity to enter into a contract
upon completion of his sentence.
Illustration- A, is serving his sentence in jail. Any contract signed by him during
this period is void.
• Insolvent- An insolvent is a person who is declared bankrupt/ against

whom insolvency proceedings have been filed in court/resolution
professional takes possession of his assets. Since the person does not
have any power over his assets, he cannot enter into contracts
concerning the property.
Illustration- A enters into a contract for sale of goods with B. Before the sale
takes place, an insolvency suit is filed against A. A sell the goods to B during
pendency of insolvency proceedings. The contract is valid.
• Foreign sovereign- Diplomats and ambassadors of foreign countries
enjoy contractual immunity in India. One cannot sue them in Indian
courts unless they submit themselves to the jurisdiction of Indian
courts. Additionally, sanction from the central government is also
required in such cases. However, the foreign sovereign has the
authority to enforce contracts against the third person in Indian
courts.
• Body corporate- A company is an artificial person. The capacity of a
company to enter into a contract is determined by its memorandum
and articles of association.
Competency of Parties to enter into an e-

contract
A party can enter into an e-contract if it satisfies the legal requirements as per
Sec. 11 and Sec. 12 of the Indian Contract Act, 1872.
Competency to contract on behalf of another

As per the Indian Contract Act, 1872 a person can employ another who shall
enter into contracts with the third person on his behalf. The person in this
instance is known as the principal and the other person so employed is known
as the agent.
Any person may be employed as an agent. However, a minor or a person of

unsound mind cannot be held liable for their acts to the principal.
An agent’s authority may be either-
1. express, i.e. by word of mouth or documented in writing as in Power

of Attorney
2. Implied, i.e. it might be deduced from the facts and circumstances of
the case
Companies ensure competency of each other

while entering into a contract
Most companies while entering into contracts with one another want to make
sure that the other party is competent enough to enter into a contract. This is
required to avoid any legal complications in the future. This is mostly done
through the inclusion of a representation clause in a contract stating that the
company, as per its memorandum and articles of association, is capable of
entering into a contract through its authorized representatives.
A copy of the articles of association may be annexed by both parties to confirm

the representations made.
If the memorandum and articles provide otherwise, a condition precedent

clause is incorporated into the agreement stating that the company shall pass
necessary board resolutions to alter its articles of association. A stipulated date
called a long stop date is given to the other party to comply with the conditions
precedent failing which the agreement shall stand terminated.
A party might be asked to produce a copy of board resolution so passed/

changes made in the articles of association to the other party to prove its
compliance with the condition precedent.
It is expressly mentioned in the agreement that both the parties indemnify

each other from any suits, proceedings, or liabilities arising from breach of the
representation clause.
Conclusion
Competency of parties to contract is one of the most important requirements
to make an agreement valid and enforceable in a court of law.
A contract made by a person who does not possess the mental capacity to
understand the nature and consequences of the contract is void ab initio. On
the other hand, contracts with lunatics, people under the influence of the drug
may/may not be void depending upon the circumstances surrounding the
situation.
A person regains the legal capacity to contract upon removal of any of the
disqualifications.
Companies while entering into contracts with one another always try to
safeguard their interests. Representation and indemnification are the most
commonly used clauses to ensure that both the parties are competent to
contract.
• Contract
What is the position of minor under
Indian Contract Act, 1872?
INTRODUCTION-
According to the Indian Contract Act, 1872, competency is a requisite
condition for any party before entering into any agreement. Section 11 of the
Contract Act says- “Every person is competent to contract who is of the age of
majority according to law to which he is subject, and who is of sound mind,
and is not disqualified by law to which he is subject.”
Thus, the section asserts the following persons who are unable to enter into a
contract-
1) Minors
2) Persons of unsound mind
3) Persons disqualified by law
A minor and contract law does not go hand in hand and the majority is a
requisite condition for a valid contract.
WHO IS A MINOR?
A minor is a person who has not yet completed the age of majority by law to
which he is subject. The age fixed by the law can be different for various legal
jurisdictions. In India, according to the Indian Majority Act, 1875- the age of
majority is attained after the completion of 18 years except in the case of a
person where a guardian has been appointed by the Court, the age fixed is 21
years. However, it is to be noted that the Indian Majority Act, 1875 has been
amended and the age of the majority is considered to be 18 years, irrespective
of the fact that a guardian has been appointed of that minor. The bill in this
regard has been passed by both the Houses of Parliament but the President’s
assent is yet to be attained.
WHETHER MINOR’S
AGREEMENT IS VOIDABLE OR
VOID ALTOGETHER?
Section 10 of the Contract Act talks about the competency of the parties and
Section 11 talks about persons who are not allowed to enter into a contract.
But neither section makes it certain, what will be the consequences of a minor
entering into an agreement, whether it would be voidable at his option or
altogether void. Thus, these provisions had created a legal conundrum about
the nature of a minor’s agreement. The Privy Council finally resolved this
controversy in the year 1903 through the landmark case of Mohori bibi vs
Dharmodas Ghose where Dharmodas Ghose, a minor, mortgaged his house for
Rs. 20,000 to a money lender. At the time of the contract the legal
representative, who acted on behalf of the moneylender was aware that the
party was a minor. The minor brought a suit against the moneylender stating
that he was a minor at the time of the contract and, therefore, the contract was
void and incompetent. But at the time of Appeal to the Privy Council, the
defendant died and the Appeal was filed by his wife, Mohori Bibi.
The Privy Council by clearing the air in the above case said that the minor’s
agreement is void ab initio i.e. void from the beginning. The general belief that
“every man is the best judge of his own interest” is excluded in the case of a
minor.
WHAT WILL BE EFFECTS OF

MINOR’S AGREEMENT?
A minor’s agreement is considered void thus, there should be no duty
to perform any part of the contract from either party and the effects of the
same are also void. But suppose that a minor by misrepresenting his age to
mislead another to contract with him, will there be any estoppel against him?
No Estoppel against a minor-

The question of estoppel against the minor raised a legal difficulty among the
authorities. But was settled by the pertinent authority that there is no such
estoppel against a minor. Estoppel means, if a person makes a statement that
misleads another person, he cannot deny the same statement in the future
when his obligation in respect of his statement arises. The doctrine of estoppel
prevents a party to state something which contradicts his previous
statements. Thus, the minor is not estopped from presenting the defense of
infancy. The reason is, there can be no estoppel against a statutory provision
given by law. But in the Mohori bibi case, the defendant misrepresented his
age in order to mortgage his house but the moneylender was already aware of
the fact that the defendant was a minor. Therefore, the Privy Council did not
consider the doctrine of estoppel as the plaintiff was not misrepresented or
mislead by the statement of the minor.
Considering the various decisions of different High Courts of India, it is to be
noted that the minor can plead minority as a defense even though at the time
of making the agreement, he falsely stated that he is not a minor.
Doctrine of Restitution-
If a minor has gained a property or any goods by falsely representing his age,
he can be compelled to restitute it, but only if the same is traceable. The
Courts may, on the ground of equity, ask the minor to return his ill-gotten
gains as he cannot have under the guard of infancy liberty to cheat. Where the
minor has sold the property or goods, he cannot be made to repay or restore
the value of goods, because that would amount to enforcing a void contract.
The doctrine of restitution cannot be applied in cases where it becomes
difficult to trace the goods or the minor has acquired cash instead of goods.
A well-known case of Leslie (R) Ltd v. Sheill where a minor tricked some
money-lenders by misrepresenting his age and got them to lend him the
amount of £ 400 thinking of him being an adult. The plaintiff attempted to
recover the principal amount and interest as damages for fraud but failed as
there is no estoppel against the minor. Further, the money-lenders relied
upon the doctrine of restitution, contending that the minor should be liable
under the equitable grounds to restore the money. Lord Sumner rejecting this
contention held that the money paid to the defendant (minor) was used for his
own use. There is no way of tracing the money and no option of restoring it as
this would lead to enforcing a void contract.
However, where a minor moves the court for cancellation of his contract, the
court may grant relief with a condition that he shall restore all the gains
obtained by him under the contract, or make suitable compensation to the
opposite party under Section 30 and Section 33 of the Specific Relief Act,
1963.
No liability in tort arising out of

contract-
A minor’s agreement is invalid of all its effects. A minor is not capable of giving
consent and thus there being no good consent, it could be laid down no change
in the position or status of the parties. It is to be noted that a minor cannot be
held liable for anything which would indirectly enforce his agreement.
Therefore, one cannot convert a contract into a tort to enable the suit against a
minor. The Calcutta High Court in a case said- “If the tort is directly connected
with the contract and is the means of effecting it and is a parcel of the same
transaction, the minor is not liable in tort”. Thus, under this principle, the
minor is not held liable in tort.
However, when the tort committed is free from the contract and which is not
directly connected with the contract, the fact that a contract is also involved
will not release the minor from his liabilities. This can be explained through
the case of Burnard v. Haggis. The facts of the are as follows- The defendant
who was an undergraduate and a minor lent a horse for the purpose of going
for a ride. He clearly stated that he did not want a horse for jumping. The
defendant then gave the horse to his friend who used the horse for jumping,
with the result that it fell and was injured. The defendant was held
responsible under tort as the act resulting in injury to the horse was outside
the purview of the contract, and in indirect relation with the contract.
WHAT ARE BENEFICIAL
CONTRACTS?
A minor’s agreement as laid down in the Mohori Bibi case is absolutely void.
However, a contract for the benefit of a minor is enforceable. Under Section 30
of Indian Partnership Act, 1932- “a person who is a minor according to the law
of which he is a subject may not be a partner in a firm, but with the consent of
all the partners, for the time being, he may be admitted to share the benefits of
the partnership.” This can be done through an agreement with his guardian
and other partners. Thus, the minor is only liable for the benefits and not for
liabilities or debts of the partnership firm. A minor will have the option of
retiring from the contract of this nature on completion of 18 years of age
within a reasonable time. Apart from a beneficial contract under the Indian
Partnership Act, contracts of marriage or marriage of Muslim minor girl,
contracts of apprenticeship are all considered under beneficial contracts.
WHAT WILL BE THE LIABILITY

OF A MINOR FOR NECSSARIES?
A minor will have liability for necessaries. The word “necessaries” is not
defined in the Act but an illustrative explanation of the meaning of the term is
given by Alderson B in his judgment in Chapple v Cooper “Things necessary
are those without which an individual cannot reasonably exist. In the first
place, food, raiment, lodging, and the like. Articles of mere luxury are always
excluded, though luxurious articles of utility are in some cases allowed.” A
minor is also accountable for the necessary services rendered to him like-
provision to education, medical facilities or legal advice. Thus, “necessaries” is
a relative factor and may be determined according to the circumstances and
facts of the case.
According to Section 68 of the Contract Act, “If a person incapable of entering
into a contract, or anyone whom he is legally bound to support, is supplied by
another person with necessaries suited to his condition in life, the person who
has furnished such supplies is entitled to be reimbursed from the property of
such incapable person” Therefore, two conditions are required to prove the
liability of a minor-
(1) the contract must be for goods necessary for his support or his standard of
living.
(2) he must not already have an adequate supply of these necessaries.
If a minor is provided with the necessaries and if he already has an ample
amount of supply of that necessary item, then the minor is not liable to
reimburse the supplier and the price is irrecoverable. In India, the liability of
the minor does not depend upon the minor’s consent. It arises out of quasi-
contractual nature, which means the liability is only that of the minor’s estate.
CONCLUSION-
The position of minor under the Indian Contract Act, 1872 is to be concluded
as that a minor cannot enter into a contract and the same would be void ab
initio. The minor cannot on attaining majority rely on ratification of the
contract made by him during his minority. The reason is that ratification
relates back to the past when the person was still a minor thus, a contract that
was void cannot be made legitimate subsequently. If it is necessary, a new
contract can be made after attainment of the age of majority with a fresh
consideration. Further, a minor’s agreement cannot be called for specific
performance as it would result in performing a void agreement. However, a
minor will be held liable only for the claim of necessaries.
Nature and Effect ofaMinor’s Agreement

Under Section 10 certain conditions have been stated to make an agreement a
contract; one of which is that parties should be ‘competent’ to contract. As
per Section 11 of the Indian Contract Act, the parties who fulfil the
following conditions are capable of entering into a contract:
1. The parties are of the age of majority,
2. of sound mind, and
3. are not disqualified from contracting by any law.

Thus, from the above points it can be briefed that a person who is a minor, or
of unsound mind, or is disqualified from contracting by law (he is subject to)
is not ‘competent’ to enter into a contract.
Minor: Minor is a person who has not attained the age of majority as specified
under Section 3 of the Indian Majority Act, 1875. A person to be a major must
have completed the age of 18 years; in the case when a guardian has been
appointed for a minor’s person or property by a court, then the age of 21
years will be considered as the age of majority. [1]
Nature of a Minor’s Agreement: The nature of an agreement by a minor has
not been specifically laid down in the provisions of the Contract Act. However,
minor is not considered a competent party to enter into a contract by Section
11. The absolute positioning of a minor’s agreement was enunciated in the
case of Mohori Bibee v. Dharmodas Ghose [2]
Facts: Dharmodas Ghose while he was a minor mortgaged his property in
favour of the defendant in order to take a loan from him. The attorney of the
defendant at the time of the aforementioned stance knew that plaintiff was a
minor. The plaintiff did not repay the whole amount and brought an action
against the defendant stating that the mortgage would be void as he entered
into the transaction during the time when he was a minor.
Held: It was held by the Privy Council that an agreement with a minor would
be considered void ab initio, i.e., void from the very beginning. Thus in
the Mohiri Bibee case the plaintiff was exempted from repaying the
remaining amount of loan.
This decision of the Privy Council in the instant case has been followed in
various cases. In Suraj Narain v. Sukhu Aheer [3], the Allahabad High Court
held that a fresh promise cannot be based on the consideration received by a
person during his minority.
Effect of a minor’s agreement: A minor’s agreement is considered void; thus
it does not impose any obligations upon the parties to fulfil their promise.
Though, there are some effects that arise out of an agreement of a minor:
1. No estoppel against a minor: Where one person has by his

declaration, act or omission intentionally caused or permitted
another person to believe a thing to be true and to act upon such
belief, neither he or his representatives shall be allowed in any suit
or proceeding between himself and such person or representative to
deny the truth of that thing [4]. Thus, a person who misled another
party and disguised as something he isn’t then such person has no
right to take the actual truth as a defence. However, question arises
regarding the law of estoppel against minor. In Jagar Nath Singh v.
Lalta Prasad [5], the court said
“the law of estoppel cannot be invoked in aid to validate that
which is void under the law”.
In Vaikuntarama Pillai v. Authimoolam Chettiar [6] the Madras High Court,

reiterated that the law of estoppel cannot overrule the provision of minor
being incompetent to contract and thereby not liable for any liability. The
same was agreed by Patna High Court in Gaganand Singh v. Rameshwar
Singh [7].
2. Doctrine of Restitution: According to the doctrine of restitution,

when a minor obtains property or goods by misrepresenting his age
then the same is subject to be returned if traceable in the minor’s
possession. In case the minor has already sold such property or
goods or converted them into cash, then he cannot be asked to
refund the same. This doctrine evolved from the judgment of Leslie
(R) Ltd v. Sheill [8]. Anyways, if the minor moves the court for the
cancellation of a contract, then the court may grant relief and ask
minor to restore the benefits he gained as given under Section 41 of
the Specific Relief Act, 1877. The section will be applicable only
when a minor has come to the court. The same was reiterated by Sir
Shadilal CJ in Khan Gul v. Lakha Singh [9]:
“the language of the section no doubt shows that the jurisdiction
conferred thereby is to be exercised when the minor himself
invokes the aid of the court.”
After the amendment of 1963, the principle of restitution is contained in

Section 33 of the Specific Relief Act.
3. No liability in contract or in tort arising out of the contract: An

agreement entered with a minor is void ab initio and therefore it
does not instigate any legal obligations upon the parties. A minor
cannot be held liable for not performing his promise or for being
liable for a tort as a consequence of the agreement. “You cannot
convert a contract into a tort to enable you to sue an infant.” [10]
In Harimohan v Dulu Miya [11] Calcutta High court held that a
minor cannot be held liable in tort for money lent on bond. The court
further explained:
“If the tort is directly connected with the contract and is the
means of effecting it and is a parcel of the same transaction, the
minor is not liable in tort.”
However, when the tort committed by the minor has no relation to the
contract concerned then such minor can be held liable. The same can be
observed in Burnard v. Haggis [12]. A minor hired a horse to go for a ride and
further enunciated that he won’t use the horse for jumping. However, later the
defendant (minor) lent the horse to his friend who used the horse for jumping.
During this, the horse fell and got injured. The defendant was held liable for
the injury caused to the horse since the tort committed was outside the
contract entered between the parties.
Conclusion: A minor’s agreement is regarded as void in India by Section 10

and 11 of the Indian Contract Act. A minor is not held liable for not fulfilling
the obligations promised in the agreement. Further, the law of estoppel is not
applicable to minors. Since a minor’s contract is void from the very beginning
the question of ratifying it does not arise at all; however, in some cases, the
doctrine of restitution may apply. Thus it can be concluded that the nature of a
minor’s agreement is quite clear as void due to which no certain legal effects
are generated out of it.
============================================================
UNIT -3
Free Consent
Meaning of 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 parties 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.
Difference between consent and free

consent
Basis Consent Free consent
When both the parties

When an agreement is done with consent
agree to a thing in the
and is free from coercion, fraud,
same sense of mind or
Meaning misrepresentation, undue influence, and
unison of mind, then the
mistake. Then the agreement is considered
agreement is considered
to be done with free consent.
to be done with consent.
Both parties must be

entering into the Consent should be free from:
agreement in the same
sense of mind. • Coercion
Essentials • fraud
Both parties must be
entering into the • misrepresentation
agreement should be
agreeing to the same • undue influence
thing. • mistake
When there is a lack of When there is no free consent, then the

Voidability consent, the contract voidability of the contract depends on the
would be void. option of the aggrieved party.
Mistake in the free consent

A mistake is described as an element, which when occurs in a contract makes
it void. There are two types of mistakes, which occurs in a contract
Unilateral Mistake
A mistake is said to be unilateral when one party is mistaken in the agreement.
Bilateral Mistake
Mutual mistake
A mistake is said to be mutual when both parties misunderstood each other.
Thus it shows that there is a breach in the principle of consensus-ad-idem in
the contracts and the contract is to be considered as void.
Illustration, “A” made an offer to “B” to sell his scooter. “A” intended to sell his
3G scooter but “B” believed that “A” would sell his 4G scooter. Thus there was
no proper communication and the fact was mistaken. It would amount to an
effective agreement.
Common mistake
Section 20 of the Indian Contract Act, 1872 lays down the provision for
common mistakes. A contract arising out of common mistake is considered to
be void. This type of mistake is possessed by both the parties but this mistake
is not the result of mutual mistake, it arises individually.
Free consent examples

Illustration
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.
Case laws
In the case of Solle v Butcher[1], it was seen that both the parties entered into
the contract of lease of Flat. Both the parties believed that the identity of the
flat has changed thus the maximum rent which was GBP 140 per annum has
also changed. But later the court held that there was no change of identity
thus, it was held that there was a mutual mistake of fact and thus the contract
was declared to be void.
Elements Vitiating Free consent
Coercion
• 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.
Coercion and duress distinguished

Basis Coercion Duress
When a person commits or threatens to When a person is

commit an act which is forbidden under the subjected to actual
Indian Penal Code, or detains an object violence or threat of
Meaning
unlawfully or threatens to do so with the violence, it is said to be
intention to force a person to enter into a duress under Common
contract, it is said to be coercion. Law.
When the agreement is

done by the means of
When the agreement made is found to be duress, the chances of
made out of coercion, then the contract contract been void is
Effect on would be rescinded or cancelled, due to less.
contract which both the parties are released from
their obligation to perform their duty as per But if the party
the contract. voluntarily acted to it,
then he is bound to
contract.
Unlawful detention of an
Unlawful detention of object amounts to
Detention object does not amount
coercion.
to duress.
A person who is not in the contract or is a But in duress, it is
Conviction stranger, coercion can be employed against mandatory to be the
him also. party of the contract.
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
• 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
• 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.
The distinction between coercion and undue

influence
Coercion Undue influence
When a person commits or When a contract is made

threatens to commit an act which between two parties and one of
Definition is forbidden under the Indian Penal them is in the position to
Code, or detains an object dominate the will of the other
unlawfully or threatens to do so party and takes unfair advantage
with the intention to force a person of the position, then the contract
to enter into a contract, it is said is said to be made out of undue
to be coercion. influence.
The relationship between parties

Relationship between both the
Relationship helps in establishing the burden
party is not required.
of proof under this section.
To misuse the power and

To force a person to enter into an
Objective dominate people, taking their
unlawful contract.
advantage and dominate them.
Nature of
Criminal offence Not a criminal offence
offence
“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” “A” an old person appoints “B”
sues “B” for breach of contract in as his attendant and “B” is his
Mumbai. nephew as well. “B” demands a
Illustration
share of his property and “A”
This agreement was considered to agrees to pay him. In this
be void as “A” had employed situation, “A” is under the
coercion, though the Indian Penal undue influence of “B”.
Code was not in force at the place
where the act was done.
Fraud
• 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.
Characteristics
• 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.
• In the case of Banque Financiere de la Cite SA v Westgate Insurance
Co Ltd[6], it was delivered in the context of negotiation, the party is
not obliged to speak.
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
• 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.
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.
The distinction between fraud and misrepresentation

Fraud Misrepresentation
Fraud means an action that

includes the false assertion of
Misrepresentation means a false
Meaning facts, concealment of facts and
representation of the fact.
any promise with the intention
to deceive a person.
According to Section 18 of the Indian

Contract, Act Misrepresentation is the
starting of deceiving information which
results in the assertion of the other party
According to Section 17 of the
into entering into a contract and
Indian Contract Act, when a
subsequently undergoing loss. The
party contracts with the other
information, however, presented by the
party with the intention to
guilty party is a result of genuine belief
Definition deceive amounts to fraud. The
about the matter. Misrepresentation is
party may directly make the
said to be committed. Firstly when the
contract with the other party
person deceiving positively asserts not
or it can be done with the help
warranted information to another
of an agent.
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.
Bonafide intention while representing a

Deliberate intention to deceive
Intention false fact believing it to be true, with no
the other party
intention to deceive
In the case of fraud, the But in the case of misrepresentation, the

Claim of
aggrieved party has the right aggrieved party has no right to claim for
damages
to claim for damage damage
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”.
Coercion in Indian Contract Act, 1872

INTRODUCTION:-
In the Indian Contract act, Section 10 talks about what agreements are
contract?. It provides that all agreements are contract if they are made free
consent of the parties, competent to contract or a lawful consideration with a
lawful object as not here by expressly declare to be void.
Section 13 of the Indian Contract Act says that two or more person set to be
consented when they are agreed upon the same thing in the same sense which
is called as consensus ad idem .
According to Section 14, Consent is set to be free when it is not caused by :-
1.) Coercion (section 15 of Indian contract Act) ; or
2.) Undue Influence (section 16 of Indian contract Act) ; or
3.) Fraud (section 17 of Indian contract Act) ; or
4.) Misrepresentation (section 18 of Indian contract Act) ; or
5.) Mistake (section 20, 21 and 21 of Indian contract Act).
According to section 15 of the Indian Contract Act , “Coercion is the
committing, or threatening to commit, any act forbidden by the Indian Penal
Code, or the unlawful detaining, or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of causing any person to
enter into an agreement”.
Coercion is said to be where the consent of a person has been caused either
by:
1.) There must be either commission or threat of commission of any offence
mentioned under IPC or,
2.) There may be unlawful detention or threat of detention of any property.
3.) This threat of offence or detention of property could be given to the other
contracting party or even a strangers/ third party
4.) Object of threat is to obtain consent of other party to contract.
1.) ACT FORBIDDEN BY THE LAW OR INDIAN PENAL CODE ;
“It says that if any person commit or threatens to commit an act which is
violated by the Indian Penal Code with a view to obtaining the consent of the
other party to an agreement, the consent in that case is to be considered that
consent is obtain by ‘Coercion’. For Example, Ram threatens to shoot Shyam, if
he does not let out his house to Ram. Shyam under fear agrees to let his house
to Ram. This agreement is brought under by coercion. Shyam consent was not
free. Shyam can avid the contract, even after agreeing”.
For Coercion, it is not a necessary concept that the IPC should be applicable on
that place where the coercion case has been attempt. The section 15 clear that
to constitute a coercion, “It is immaterial whether the IPC is or is not in force in
the place where the coercion is employed.”
ANALYSIS OF SECTION 15:-
1.) Coercion may proceed from anybody, not necessary contracting party.
2.) It includes physical compulsion, fear and even danger to goods.
3.) It must be obtained by unlawfully detaining or threatening to detain person
or property.
4.) There must be an intention to cause the other enter into an agreement.
EFFECTS OF COERCION:-
1.) It makes the agreement voidable at the option of the party coerced.
2.) Any money received or goods delivered under coercion must have to be
repaid or returned.
3.) Coerced person may rescind the contract.
In Ranganayakamma v. Alwar Seti , “The question is arise in front of the high
court of Madras was regarding the validity of the adoption of a boy by a widow,
aged 13 years. On the death of her husband, the husband dead body was not
allowed to be removed from her house for funeral, by the relatives of the
adopted boy until she adopted the boy. The court held that adoption was not
binding on the widow as her consent had been obtained by coercion.”
In Chikkam Ammiraju v. Chickam seshamma , In this case, the husband by a
threat of suicide, induced his wife and son to execute a release deed in favor of
his brother in respect of a certain proprieties claimed as their own by the wife
and son. The high court of madras held that to commit suicide amounted to
coercion within the meaning of section 15 of the Indian Contract Act and
therefore release deed was voidable.
2.) UNLAWFUL DETAINING OF PROPERTY:-
According to section 15, “Coercion could also be caused by the unlawful
detaining, or threatening to detain, any property, to the prejudice of any
person whatever, with the intention of causing any person to enter into an
agreement”. For Example, if an outgoing agent refuses to hand over the
account books to the new agent until the principal executes release in his
favor, it considered as coercion. But if the detention of property is not
unlawful, there is no coercion.
Main points related to unlawful detaining of property:-
1.) Forceable dispossession of property under threat is coercion.
2.) Threat to strike is not coercion because strike may be a lawful weapon for
collective bargaining but gherao is coercion.
3.) When a contract is made under a statutory compulsion there is no
coercion.
4.) Duress (pressure) is not a coercion, it is a part of coercion. It is only
regarding for person, not a property.
Difference between duress and coercion:-
1.) Coercion is restricted by Indian penal code but on the other side duress is
not restricted by IPC.
2.) Coercion threat may be directed against other party or even against
strangers but on the other side duress must be directed against a party to the
contract, or his wife, child, parent, or other near relative.
3.) Coercion may be directed against a person or his property but on the other
side duress is constituted by acts or threats against the person and not against
the property.
4.) Coercion may proceed from a person who is not a party to the contract but
on the other side duress should proceed from a party to the contract or by
anyone acting with his knowledge and for his advantage.
5.) In coercion, no such requisites are necessary in Indian law but on the other
side duress must be such as will cause immediate violence and also unnerve a
person of ordinary firmness of mind.
CONCLUSION:-
“In order to create coercion, a person must show that there was a risk that
was prohibited by law and that forced him to enter into a contract that he
would not otherwise have. The burden of proof lies on the aggrieved party in
case of coercion while in undue influence it lies on the other party. If
conditions are found, the effect on the contract is usually that the entire
contact rescission has the effect of cancelling the agreement in its entirety”
Undue Influence in Contract
Introduction
Section 13 of the Indian Contract Act (ICA) defines consent as the meeting of
minds of the parties i.e. consensus ad idem (when they are in agreement on
the same thing in the same sense). Section 14 further qualifies consent as an
important ingredient of a valid binding contract as has been mentioned in
Section 10 by stating that “Consent is free unless it is caused by Coercion
(Section 15), Undue Influence (Section 16), Fraud (Section 17),
Misrepresentation (s 18) or Mistake (s 20-22). A contract entered under
influence of the defendant is enforceable at the option of the plaintiff (the party
whose consent was so caused) and voidable under Section 19A of ICA.
What is undue influence?

Section 16 of ICA states that ‘a contract is said to be induced by undue
influence where the will of the party consenting is able to be dominated by the
other one due to the existence of the relation subsisting between them’. One
party influence the other while the contract is formed to get an unfair
advantage over the other. It further qualifies that a person is able to dominate
the will of the other if he:
1. Has a real or apparent authority arising out of fiduciary relations

(relationship of trust) between them, or
2. Forms the contract with a person whose mental capacity, due to
illness or age or due to mental distress is temporarily or permanently
affected.
The burden of proof to prove that the contract was not affected from undue
influence lies with the defendant i.e. the person who was in a position to
dominate the will of the other. In addition, this section mentions that it will not
affect Section 111 of the Evidence Act, 1872 which talks about good faith in
the transaction between the parties.
The Principle of equity

The doctrine of Equity which was established by English Courts of King’s Bench,
the Exchequer and the Court of Common Pleas talks after unjust enrichment
and is applicable in every case where there is the acquirement of influence and
its abuse and where there is reposition or betrayal of confidence. Thus, every
contract which involves undue influence comes under the ambit of the principle
of equity.
Types of undue influence

The judgement in Allcard v. Skinner[1] classified the cases on undue influence
in two parts- those in which there is a charge against donee or where there is
an abuse of opportunities which a person got through his duty. The court in
above case further elaborated on the ratio of the judgement and stated that
“in the former case the remedy is given on the principle that no one should be
allowed to retain any benefit that he gets through his fraudulent or illegal
activities and in later cases it is based on the grounds of public policy so that
it can prevent the abuse of influence between the parties by preventing relation
between them”.
There are two conditions which are needed to be proved by the person seeking
damages[2]:
1. That the relation between parties is such that one is able to influence
the decision and will of the other, and secondly
2. That the donee or the defendant has abused his position to enrich
himself.
But here, a joint discussion of all the cases would be feasible and will prevent
the confusion in understanding them. Mainly, all the cases of undue influence
fall under the following categories.
• Relationship- For a case to fall in this category, it is not mandatory

that the parties are related to each other by blood relation, marriage
or through adoption but what is necessarily required is that one party
must be in a superior position and be able to dominate the will of the
other. It does not restrict itself to strict fiduciary relationships but
applies to all varieties of relationships. However, only the existence
of such relationships is not able to prove undue influence but there
must be an exercise of the dominance.[3]
• Dominating Position- In this category of undue influence, the

circumstance under which the contract was made is taken in the
account along with their relationships. The existence of dominating
position along with its use is mandatory to invoke an action. If once
dominance is established, unless any contrary object appears, it is
presumed that there was a use in the particular instance.
• Unfair Advantage- In Ganesh Narayan Nagarkar v. Vishnu
Ramchandra Saraf[4], it was stated by the court that, “unfair
advantage is the advantage or enrichment which is obtained through
unrighteous or unjust means”. It comes into existence when the
bargain favours the person who enjoys influence and which proves
unfair to others.
• Real and Apparent Authority- In this type of influence, there is a
real authority like a police officer or an employer who uses his
dominance for his enrichment. Apparent authority is pretending real
authority without its existence.
• Fiduciary Relationship- This type of relationship is solely based on
the existence of trust between the parties for each other. It is such
that one of the parties naturally reposes its confidence in the other
one and with an increase in that confidence gradually, one party starts
influencing the other. This type of relationship usually exists between
doctor and patient, lawyer and client, parent and child, teacher and
student and beneficiary of a trust (cestui que trust) etc. An example
of such type of case was in Mannu Singh v. Umadat Pande[5]
where a guru influenced his disciple to take his property in gift by
promising to secure benefits to him in the next world. The court set
the gift aside as it was not formed with free consent.
• Parent and Child- As parent fulfil every need of their children and
want them to act on their supervision, there is an inherent influence
on children from their childhood and that follows throughout their life.
Thus, when any benefit is transferred to the parent or any third-party
on the expense of the child, it is considered as jealousy on the part
of a parent by the courts of equity. Thus in every case, children’s age
is always taken into account to determine the extent of parental
influence. In Lancashire Loans Ltd v. Black[6], when a girl just
before her marriage entered in a money lending transaction as surety
for her mother, it was held to be entered under undue influence.
• Affecting Mental Capacity- It is an established law from Inder
Singh v. Dayal Singh[7] that, “undue influence arises when one
party taking the advantage of the temporary or permanent advantage
of another’s mental condition executes a contract. But, a mere
distressed state of mind cannot amount to undue influence until the
defendant has used this opportunity to his advantage. Similarly,
instigating a person to enter into a contract who has just attained his
majority amounts to undue influence under this category due to lack
of plaintiff’s experience.
Illustration- A entered a contract with B, who is a minor and is unable to
understand the complex terms of the contract. Unless A proves that the
contract was entered in good faith and with adequate consideration, it will
amount to undue influence
The threat to prosecute

This is a different case for undue influence wherein one party, to get some
enrichment in its favour, threats to prosecute the other party. Even when there
was no instigation to cause a direct threat, taking an undertaking of something
from the party who wants to avoid prosecution suffices the elements of the
case if the desire to avoid prosecution is known to whom the undertaking is
given. This doctrine applies to every case where a person gives the
undertaking in order to avoid prosecution was in substance influenced to act
in such a manner. However, where there is further consideration, undue
influence may not be applicable. As in Flower v. Saddler[8], when a debtor
secured his debt, as the other party indebted wanted to avoid prosecution. In
addition, a threat to prosecute is considered contrary to public policy in some
cases.
The doctrine of inequality in bargaining

power
This doctrine deals with those cases in which one party took advantage of
others bargaining power and necessity and pressurizes it to enter into the
contract. This doctrine is applied in the cases of contracts as an independent
principle. In Lloyds Bank Ltd v. Bundy[9], the bank was held liable as there
was the existence of a special relationship of confidence which was vested in
them by the father of the person in regard to his debt.
The doctrine was further discussed in the case of Central Inland Water
Transport Corporation Limited v. Brojo Nath Ganguly[10] when
petitioner’s services were terminated by giving a three-month notice under the
terms of the contract through which he was employed which as alleged, was
arbitrary under Article 14 and was bad in law. The court held that “a contract
which was entered between the parties who are not at the same footing in
their bargaining power will be not enforced by the court”.
Contract with a pardanashin women

‘Pardanashin’ means hidden behind the veil or a screen. It refers to a woman
who practices seclusion. The ground on which this doctrine is established is
that “such women are less conscious and can be easily influenced with very
little external manifestation. This rule is not limited to an only veiled woman
but is also extended to those women who are not technically pardanashin but
are illiterate, old or sick. But, this principle also applies to men as in Daya
Shanker v. Bachi[11], who by their physical or mental capacity are prone to
easy influence and after inducement tends to enter into contract or
transactions relating to purchasing and sale of the property. The principle on
which the protection by law is accorded to a pardanashin women is based on
equity and good conscience.[12]
Who can plea against undue influence?

As held in M Venkatasubbaiah v. M Subbamma[13], the plea of undue
influence has to be from the party or from its legal representatives[14] who
have executed the document or formed the contract under such influence from
the other party. Any third party is not allowed to claim adversity or lack of
consensus in any manner even if he feels so. But, a contract is fit to be set
aside if there was undue influence by any other (third party) party[15] other
than that in the contract. Similarly, a party to the contract can lose its rights
under the contract if it was in conspiracy with a third party[16], was an agent
or principle of the third party by the aid of which it was able to exercise his
influence over the contract.
Effects of undue influence

Under Section 19A of the Contract Act, an agreement induced by undue
influence is voidable at the option of that party whose consent was taken by
influencing him/her. Performance of such agreements may be avoided
absolutely or on prescribing certain terms and conditions.
Conclusion
While concluding, it may be said that undue influence is one of the ways under
which there is inadequate consent as defined under Section 13 of the Act. In
addition, the formation of a contract by misusing one’s influence violates the
principle of equity. Thus, in fiduciary and other relationships where one party
enjoys real of apparent authority or influence, one must ascertain that the
contract he/she has made is free from any external manifestation. However,
such contracts are voidable at the option of the party whose consent was so
taken under Section 19A and cannot be enforced in Court of law.
Misrepresentation under the

Indian Contract Act, 1872:
Introduction
A misrepresentation is an untrue statement of a material fact made by one
party which affects the other party’s decision in corresponding to a contract.
If the misrepresentation is identified, the contract can be declared void and
depending on the situation, the unfavourably impacted party may seek
damages. In such a contract dispute, the party who made the
misrepresentation becomes the defendant and the aggrieved party is the
plaintiff.
Misrepresentation in contract law is especially important in business dealings

where huge transactions occur with high frequency. Misrepresentations of the
value and/or risk correlated with an agreement can cause enormous financial
losses to businesses and individuals while increasing the risk of collaborative
business ventures. Accordingly, misrepresentation contract law is vital to
ensuring fairness and diminishing the risk of entering into agreements between
individuals and businesses.
Definition
Misrepresentation is defined under Section 18 of the Indian Contract Act, 1872
which says, a misrepresentation is a form of a statement made preceding to
the contract being completed. There are two varieties of statement that can
be performed before a contract is formed, these will either:
1. Form part of the contract.

2. Not form part of the contract, therefore it becomes a representation.
Concept of Misrepresentation
For understanding the concept of misrepresentation first, we need to know the
meaning of representation in terms of the contract. A representation is said to
be such statement which generates the entry into a contract but is not a part
of a term of the contract.
Misrepresentation is about giving of inaccurate information by one party (or

their agent) to the other before the contract is made which induces them to
make the contract. If a person makes a contract in reliance on
misrepresentation and has to face loss as a result, they can revoke the contract
or claim damages.
Unwarranted Statements
A statement made without any reasonable basis is an unwarranted statement.
When a person makes a positive statement of a fact without any trustworthy
source of information and believes that statement to be true, the act amounts
to misrepresentation. When something is unwarranted it is not called for under
the provided circumstances. For instance, arguing the merits of someone’s
talent is one thing, but addressing them stupid is unwarranted.
Breach of duty
Once a duty has been established in relation to the defendant we must find
that the defendant has breached the duty. A breach of the duty of care occurs
when one fails to achieve his or her duty of care to act wisely in some aspect.
Commonly, if a party does not act in a reasonable manner to prevent
foreseeable injuries to others, the duty of care is breached. Breach of duty is
defined in a very interesting case named Vaughn V. Menlove which it states
that the defendant is found to have overdue of the claimant and if he acts
below the reasonable standard then a breach of duty would have been
committed
• they may find out the cause of the breach and try to remedy it;
• they may dispute that a breach has occurred;
• they may argue that there is an exclusion clause or other terms in
the contract limiting their liability for the breach; or
• they might argue that there is a cause for their breach, or that the
contract is invalid.
Inducing mistake about subject matters

Inducing mistake about subject matter involves around mistake of fact. This
happens when both the parties misunderstood each other leaving them at a
crossroads. Such a wrongful act or a mistake can be because of an error in
understanding, or ignorance or omission etc. But a mistake is never
intentional, it is an innocent commanding. These mistakes can either be
unilateral or bilateral which is explained below.
Bilateral Mistake
Section 20 defines a bilateral mistake. Where both parties of a contract are
under a mistake of fact required to the agreement, such a mistake is called a
bilateral mistake. Here both the parties have not permitted or given their
consent in the same sense as per the definition of consent. Considering there
is an absence of consent altogether the agreement is void.
However, to make an agreement void the mistake of fact should be about some
crucial fact that is important in a contract. So if the mistake is about the
presence of the subject matter or its title, quality, price etc then it would be a
void contract. But if the mistake is of something inconsequential, then the
agreement is non-void and the contract will remain in place.
For instance, X agrees to sell to B his goat. But at the point of the agreement,
the goat had already died. Neither X nor B was cognizant of this. Therefore,
there is no contract at all i.e. the contract is non-enforceable due to a mistake
of fact.
Unilateral Mistake
A unilateral mistake is when only one person to the contract is under a mistake.
In such a case the contract will not be considered void. So Section 22 of the
Act states that just because one party was under a mistake of fact the contract
will not be voidable or void. So if only one party has made a mistake of fact
the contract remains a valid contract.
However, there are some limitations to this. In certain conditions, even a

unilateral mistake of fact can occur withdrawing or voidable agreement.
Types of Misrepresentation
There are three types of misrepresentation present in the contract:
• Fraudulent misrepresentation
Fraudulent misrepresentation will happen when a false representation is made
and the party making the representation let say X knew it was false or was
reckless as to whether it was correct or incorrect- the lack of an accurate belief
in its truth will present it a fraudulent one. If A honestly believes the statement
to be true it cannot be a fraudulent misrepresentation, negligence in creating
a false statement will not result in fraud. However, if it can be shown that A
suspected that the statement might be incorrect or wrong, but made no
enquiries to check the position, that will be sufficient. It will not be mandatory
to prove a dishonest motive.
• Negligent misrepresentation
Negligent misrepresentation under the Misrepresentation Act 1967 (MA 1967)
befalls where a declaration is made by one contracting party to another
negligently or without reasonable grounds for believing its truth. The test is an
impersonal one.
There is no obligation to establish fraud. If the innocent party can prove the
statement was false, it will be for the maker of the statement to establish that
it rationally believed in the truth of the statement (that is, the representation).
A solution for negligent misrepresentation remain at common law, however,

its use in contractual situations has been considerably lessened as a result of
Section 2(1) of the MA 1967.
• Innocent misrepresentation
Misrepresentation made completely without fault can be described as an
innocent misrepresentation.
If X is unable to show it had objective grounds to believe its declaration was

true the misrepresentation will be fraudulent or negligent.
Suppression of Vital Facts

Raymond Woollen Mills Limited v. Income Tax Officer, Centre Circle Xi, Range
Bombay And Others
In the above-cited case, the appellant has argued that the Department has
made a grievous mistake. In coming to the conclusion. In this case, the court
does not have to give a final decision as to whether there is a suppression of
evidence. The fact is not a thing to be considered at this stage. We are of the
view that the Court cannot strike down the reopening of the case in the facts
of this case. It will be open to the assessee to the understatement of profits.
This information was obtained by the Revenue in a subsequent year’s
assessment proceeding. There was prima facie of the fact on the basis of which
the department could reopen the case further. The sufficiency or the
correctness of the fact or material is not a thing to be considered at this stage.
Raj Kumar Soni Vs. State of U.P 2007
Here in the case again the suppression of material facts has been held to be
the opposition of process of law and it has been held that the party guilty of
not representing the right facts is not to be benefited with any perks as it has
to be held that such a party would not have to knock the doors of the court
with clean hands.
Remedies of Misrepresentation
As we know the contract made in misrepresentation is voidable which is not
done intentionally by the party. So by keeping this in mind, The remedies for
misrepresentation are:
• Rescind: Rescind means to cancel. When the aggrieved party wants

he can claim for cancellation of the contract and/or damages. Under
contract law, rescission is defined as the unmaking of a contract
between the parties. Rescission is the unwinding of a transaction. This
is made to bring the parties, as far as possible, back to the position
in which they were before they entered into a contract (the status
quo ante).
• Insist upon the performance: The aggrieved party can claim to the
first party who have committed misrepresentation to get the object
in the manner which was prior to the contract that they directly.
Limitations available to remedies

A condition can be included in a contract that limits the remedies that will be
available wherever a party has the right to make a misrepresentation claim.
For instance, such a clause could limit the remedies to those available for
breach of contract- definitely excluding the right of the innocent party to
revoke the contract.
Representation of state of mind

Representation initiates and induces a contract. It is the information by which
a contracting party decides whether to continue with the contract. A
representation is an express or implied statement that one party to the
contract forms to the other before or at the point of the contract. It is entered
with regard to past or existing fact. An illustration might be that a seller of
some commodity represents that no notification of patent infringement had
been received.
A representation initially cannot be a part of a contract and a claim for damages

due to a misrepresentation ordinarily would not be allowed. Instead, a claim
that a misrepresentation induced a contract might be pursued in fraud, either
to revoke the contract or for damages. In some cases, a claim might be based
on the tort of negligent misrepresentation.
Consequences of Making a Misrepresentation

The consequences of misrepresentation are explained under the case of Bskyb
V. EDS in this case, judgement passed in the year 2010, that EDS had made
fraudulent misrepresentations as to its capacity to deliver a project within a
specific timetable and in a particular manner that it had carried out a proper
investigation to enable it to make this statement. The judge also found that it
was a consequence of these misrepresentations that BSkyB had been induced
to enter into a contract with EDS. The damages that could be payable as a
result have been determined at £200 million or more. There was a frontier of
liability in the contract to £30 million but both parties have accepted that such
a frontier is not effective to limit liability for fraudulent misrepresentation.
Conclusion
Overall, by concluding the said factors we know that, administer a contract
void or voidable based upon the specific circumstances of the case. If a
contract is a void then it cannot be enforced by both of the parties, whereas if
a contract is interpreted as voidable then although it is a valid contract it can
be cancelled or revoked. Essentially, whilst a void contract cannot be
performed, a voidable contract can depend upon either of the parties after
they decide to cancel it. If there has been a misrepresentation or a mistake
the contract may be declared void and therefore be abolished. If duress or
undue influence has occurred, then the contract may be rendered voidable and
thereby capable of being cancelled.
Fraud in Contracts- Section 17

of the Indian Contract Act
Definition of Fraud
Fraud implies and involves any of the following acts committed by a contracting
party or his connivance or his agent with the intention of deceiving or inciting
another party or his agent to enter into the agreement.
• The suggestion, as a fact, of that which is not true by one who does
not believe it to be true.
• The active concealment of a fact by one having knowledge or belief
of the fact.
• A promise made without any intention of performing it.
• Any other act fitted to deceive.
• Any such act or omission as the law specially declares to be
fraudulent.
Mere silence as to facts likely to affect the willingness of a person to enter into
a contract is not fraud, unless the circumstance of the case is such that, regard
being had to them, it is the duty of the person keeping silence to speak, or
unless his silence, in itself is, equivalent to speech. Illustration– A sells by
auction to B a horse, which A knows to be unsound, A says nothing to B about
the horse’s unsoundness. This is not fraud in A.
Section 17 describes fraud and lists the acts that amount to fraud, which are
a false claim, active concealment, promise without the intention of carrying it
out, any other deceptive act, or any act declared fraudulent. To constitute
fraud, the contracting party, or any other individual with his connivance, or his
agent, or to induce him to enter into the agreement, should have performed
such acts. The parties have no duty to speak about facts likely to affect the
consent of the other party to the contract, and mere silence does not amount
to fraud unless the circumstance of the case shows that there is a duty to
speak or silence equivalent to speech.
Fraud and Misrepresentation

The main difference between fraud and misrepresentation is that in the first
case the person making the suggestion does not believe it is true and in the
other case he believes it is true, although in both cases it is a misrepresentation
of fact that misleads the promisee. This was held in Rattan Lal Ahluwalia v Jai
Janider Parshad. Under common law, fraud will not only render the contract
voidable at the option of the party whose consent is so obtained but will also
give rise to an action for damages in respect of deceit.
If a decree is found to have been obtained by fraud, an application moved,

even belatedly, would be maintainable. The court has inherent jurisdiction to
grant relief on such an application and even principles or res judicata would
not apply. Fraud is a conduct either by letter or words, which includes the other
person or authority to take a definite determinative stand as a response to the
conduct of the former either by words or letter. Indeed, innocent
misrepresentation may also give reason to claim relief against fraud.
Ingredients of Section 17
When analysed s 17(1) shows the following ingredients:
1. There should be a suggestion as to a fact;

2. The fact suggested should not be true;
3. The suggestion should have been made by a person who does not
believe it to be true; and
4. The suggestion should be made with intent either to deceive or to
induce the other party to enter into the contract.
Representation
A representation is a statement of fact, past or present and is distinct from an
opinion statement, although a statement of opinion may be considered as a
statement of fact in certain circumstances. The fraudulent misrepresentation
must be material in order to allow the representative to prevent the
agreement, i.e. such that it would have affected a reasonable man in choosing
whether to enter into the agreement or not. In Lillykutty v Scrutiny Committee,
a false certificate was obtained in order to take unfair advantage. It was held
that fraud vitiates every solemn act. Fraudulent acts are not encouraged by
the courts. Any action by the authorities or by the people claiming a
right/privilege under the Constitution of India which subverts the constitutional
purpose must be treated as a fraud on the Constitution.
False Assertion without Belief in its Truth

To prove a case of fraud, it must be proved that representations made were
false to the knowledge of the party making them. The statement must be false
in substance and in fact. Positive knowledge of falsehood is not a criterion. In
order to constitute fraud, it is necessary that the statement was made by the
person concerned with knowledge of its falsehood, or without belief in its truth.
Even mere ignorance as to the truth or falsehood of material assertion, which,
however, turns out to be untrue, is deemed equivalent to the knowledge of its
untruth, as also where the representor suspected that his statement might be
inaccurate, or that he neglected to inquire into its accuracy. In Jewson & Sons
Ltd v Arcos Ltd, giving a false impression and inducing a person to act upon it,
was considered fraud, even if each fact taken by itself would be literally true.
Reckless Statements
Proof of absence of actual and honest belief is all that is necessary to satisfy
the existence of fraud, whether the representation is made recklessly or
deliberately; indifference or recklessness on the part of the representor as to
truth or falsity of the representation affords merely an instance of absence of
such belief. Statements made without belief in the truth would include
statements made recklessly. Misrepresentation as to title made by vendors
recklessly or with gross negligence cannot escape the charge of fraudulent
misrepresentation.
Ambiguous Statements
Where the representer makes an ambiguous statement, the person to whom
it is made must prove that he understood that statement in the sense that it
was in fact false. The representor will be guilty of fraud if he intended the
statement to be understood in that sense, and not if he honestly believes it to
be true, but the person relying on it understands it in a different sense. Once
it is held that the representation was fraudulent under this clause, the
exception in s 19 is of no avail, and the question whether the person alleging
fraud had or had not the means of discovering the truth with ordinary diligence,
is immaterial.
Active Concealment
Mere non-disclosure of some immaterial fact s would not per se five a right to
recission unless it is further found that the consent has been secured by
practicing some deception. Where the seller sold property already sold by him
to a third person, his conduct amounted to active concealment and fraud, and
the buyer could recover the price despite the agreement that the seller could
not be responsible for a defect in title.
Promise without Intention of performing it

Making a promise without the intention of performing it is fraud, though not
so under the English law. To bring the case within this clause, it must be shown
that the promisor had no intention of performing the promise at the time of
making it, and any subsequent conduct or representation is not considered for
this purpose.
Silence as Fraud
Silence about fats is not fraud per se. Unless there is a obligation to talk or if
it is equal to expression, mere silence is not fraud. This rule has two skills.
First, suppressing portion of the known facts may mislead the assertion of the
remainder, although literally true as far as it goes. In such a case, the
declaration is substantially incorrect, and fraudulent is the willing rejection that
makes it so. Secondly, commercial use may impose a obligation to disclose
specific flaws in products sold or the like. In such a situation, failure to mention
such a defect is equal to an statement that there is no such defect.
Mere silence usually does not support a fraudulent action. However, when
silence is taken together with the circumstances of a particular case, it may
amount to misrepresentation. While courts are willing to engage with various
factual circumstances to ensure that parties’ intentions are upheld, prudence
is always key to reducing the commercial risks and potential litigation in the
formulation of contracts.
Mere silence or nondisclosure of facts would not constitute a wrongful act

unless the defendant is under an obligation to talk and conceal the facts of a
particular transaction or trade. Therefore, mere silence amounts to fraud
when the circumstances of the case are such that the individual has a duty to
speak and inform the other party of the facts, but they remain silent or the
party’s silence is equivalent to expression. The other party to the contract is
misled and suffers damages as a consequence.
Section 19 explains the voidability of contracts in the absence of free

consent. The first exception of this section explains that if a party gave
consent to the terms of the contract by silence or by misrepresentation, the
contract would not be voidable if the party could have discovered the truth
by ordinary diligence. Here, the silence or the misrepresentation must fall
under the ambit of fraud as mentioned under Section 17.
Duty to Speak
There is no general duty to disclose facts that are or might be equally within
the means of knowledge of both parties. In Bell v Lever Bros, the company
agreed to pay large compensation to two employees, the subsidiary company
directors, whose services were being dispensed with. After paying the money,
the company discovered that the directors had committed breaches of duty,
which would have justified their dismissal without compensation. The House of
Lords held that the directors had not these breaches in mind, and were under
no duty to disclose them.
No Fraud
If the party alleging fraud had the facts before it or had the means to know
them, it could not be said to have been defrauded, even if a false statement
has been made. Further, a contract cannot be merely on a trivial and
inconsequential mis-statement or non-disclosure. In Janakiamma v Raveendra
Menon, where the plaintiff was aware of the contents of the Will of her father,
the partition of property on the death of the father and mother was not set
aside on the ground of fraud of not disclosing the contents of the Will; and no
fresh partition was ordered.
Evidence and Burden of Proof

In a great majority of cases, fraud is not capable of being established by
positive and tangible proof. It is by its very nature secret in its movements. It
is, therefore sufficient if the evidence given is such as ay lead to interference
that fraud must have been committed. In most cases, circumstantial evidence
is the only resource in dealing with questions of fraud. If this were not allowed,
the ends of justice would be constantly, if not invariably, defeated. At the same
time, the interference of fraud is to be drawn only upon an intentional
wrongdoer. Being a restitutionary remedy, all actual losses flowing from fraud
are recoverable, even if they could not have been reasonably foreseen; subject
to the rule of mitigation by the defrauded party. Nor would the damages be
reduced on account of contributory negligence.
Effect of Fraud
A contract, consent to which is obtained by fraud, is voidable under s 19. The
party deceived has the option to affirm the contract and insist that he be put
in the position in which he would have been if the representations were true,
or he may rescind the contract to the extent it is not performed. Upon
rescission, he is liable to restore the benefit received by him under s 64 and
may recover damages. The measure of damages recoverable is essentially that
applicable to the tort deceit, ie, all the actual loss directly flowing from the
transaction included by the fraud, including the heads of consequential loss,
and not merely the loss which was reasonably foreseeable. Where a document,
which was intended to be in favor of a particular person but, as a result of
fraud of the defendant, conveyed to someone else, the transaction would be
also voidable under s 19.
Damages for Fraud

Where a contract is induced by fraud, the representee is entitled to claim
rescission, or damages or both. He would have a remedy by way of such suit,
even if restitutio in integrum is not possible as in Indranath Banerjee v Rooke.
In Firbank’s Executors v Humphreys, the damages for fraudulent
misrepresentation, under the general rule, were arrived at by considering the
difference in the position the plaintiff would have been in, had the
representation been true and in the position he is actually in, in consequence
of it’s being true.
The principles applicable in asserting damages for fraudulent

misrepresentation have been stated by Lord Browne-Wilkinson in Smith New
Court Ltd v Scrimgeour Vickers (Asset Management) Ltd:
• The defendant is bound to make reparation for all the damage directly
flowing from the transaction;
• Although such damage not have been foreseeable it must have been
directly caused by the transaction;
• In assessing search damage, the plaintiff is entitled to recover by way
of damages the full prize faced by him, but he must give credit for
any benefits which he has received as a result of the transaction;
• As a general rule, the benefits received by him into the market value
of the property acquired at the date of the transaction, but the general
rule is not to be inflexible applied where to do so would prevent him
from obtaining full compensation for the wrong suffered;
• The plaintiff is entitled to recover consequential losses caused by the
transaction;
• The plaintiff must take all reasonable steps to mitigate the loss once
he has discovered the fraud.
In what circumstances will non-disclosure

amount to an actionable
misrepresentation
There are many situations wherein the silence, that is, the non-disclosure of
information is considered to be critical to the contract and the act of
withholding or not offering the material facts amounts to misrepresentation.
The more genuine the defect, the more it is covered up, and the more
harmful it is to the individual – the more likely the courts will consider the
party’s silence as fraud.
1. Duty to disclose facts

The first such case when silence can be held accountable for fraud is when
there is a duty by the other party to disclose facts about a particular case.
This duty to speak arises where one party makes an offer and the other party
accepts. It also arises when one of the parties does not have the intellect or
the resources to discover the truth and is dependent on the honesty of the
other parties involved.
A contract where such duty arises is uberrima fides, that is, a contract made
in good faith. An example would be a contract of insurance, wherein it is the
duty of the insured to inform the insurance agent of all the relevant facts to
the risk that is being covered. There must be complete good faith on the part
of the assured. The insured has a duty to disclose all the relevant facts to the
insurer so that he can take into account whether the proposal should be
accepted or not.
In P. Sarojam v. L.I.C of India (1985), it was held that when wrong answers
are given in a life insurance policy, the policy would be voidable irrespective
of the fact that the officer of the corporation certified the policy. In Rajesh
Kumar Choudhary v. United India Insurance Co. Ltd, (2005), the party did
not disclose that they applied for insurance for their property on similar
grounds but had been rejected by the same company. This non-disclosure
was held as a suppression of a material fact.
The burden of proof lies on the insurer and they need to show that facts were
suppressed by the insured, and that they were of material nature to the risk
that was to be covered. They also need to prove that the insured concealed
the facts with the intention of misrepresenting the risk undertaken by the
insurer.
Some instances where mere silence amounts to fraud are as follows:
Contract of immovable property

Under Section 55(i)(a) of the Transfer of Property Act, 1882, the seller is
under an obligation to reveal to the buyer any material defect or shortcoming
in the property or in the seller’s title of which the seller is aware. It must be
highlighted that the buyer is not aware of that particular defect and cannot
foresee or disclose it as a reasonable person.
Contract of marriage
Each party to a contract of marriage is bound by a duty to disclose every
material fact. If the accurate facts are not revealed, the other party can
break off the engagement and revoke the contract. In the case of Anurag
Anand v. Sunita Anand (1996), it was held that caste, income, age,
nationality, religion, educational qualifications, marital status, family status,
financial status, would be considered as material facts and circumstances.
Therefore, when the consent of one party to the marriage is obtained

fraudulently by concealing a material fact concerning the other party, this is
voidable at the option of the first party. A decree of nullity can be obtained to
annul the marriage. This is in accordance with Section 12 (i)(c) of the Hindu
Marriage Act, 1955 and Section 25 of the Special Marriage Act, 1954.
2. When silence is deceiving

Silence itself in some situations can be considered equivalent to speech.
Herein, a person who remains silent despite knowing that his silence can be
deceptive is not innocent and can be declared guilty of fraud. For example,
the buyer knows the property’s actual worth but conceals this fact from the
seller. The seller has the option to rescind the sale as it is void.
Another example would be: Mr. A has full knowledge of the fact that an
insolvent decree is fully secured. He suppresses this fact and convinces the
Official Assignee to assign it at 10 percent of its face value to him. Here, Mr.
A makes the representation that the decree is unrealizable. He does not have
a duty to disclose that the security is fully secured. However, he makes a
false statement that the decree is practically unrealizable with the intention
to deceive the assignee. Therefore, his silence would amount to fraud.
3. Change of circumstances
Some of the time a portrayal is genuine when made, yet, it might, on
account of a difference in conditions, become bogus when it is followed upon
by the other party. In such conditions, it is the obligation of the individual
who made the portrayal to convey the difference in conditions. In an English
case, a clinical specialist spoke to the offended party that his training was
worth £2000 per year. At the time the statement was made, he had stated
the correct value of the practice. However, five months later when the
plaintiff purchased the training, it was almost worthless. It was held that the
failure to communicate the difference in conditions amounted to an
actionable misrepresentation.
Similarly, in T.S. Rajagopala Iyer v. South Indian Rubber Works Ltd

(1942), a company’s prospectus showed that certain individuals would be the
company’s directors. However, before the allotment, some directors had
retired and there were changes in the directorate. The Madras High Court
held that the non-communication of the change in the directorate was
enough for an allottee to avoid the allotment.
4. Half-truths
In any event, when an individual is under no obligation to unveil reality, he
may turn into blameworthy misrepresentation by non-divulgence if he
intentionally reveals something and at that point stops a large portion of the
way. An individual may keep quiet, yet on the off chance that he talks, an
obligation emerges to unveil every bit of relevant information.
In R.C.Thakkar v. Bombay Housing Board (1972), incorrect estimates were

given in a tender. The contractor, in the belief that the estimate was correct,
reduced the costs. The court held that the representations made in the
tender amounted to misrepresentation. The defendants could not take the
defense that the plaintiff could have deduced the actual costs by reasonable
efforts.
5. Guarantee obtained by keeping silence to

material circumstances
Section 143 of the Indian Contract Act, 1872 invalidates a guarantee
obtained by willful silence as distinguished from mere non-disclosure. The
creditor had the duty to give the surety precise and accurate information of
all the relevant material facts.
Under this Section, it must be proved that not only was silence observed to
material circumstances but the guarantee was also obtained because of the
same.
For example, an employer guarantees that the servant is honest and

hardworking. However, he concealed the fact that the servant is also
employed elsewhere and is guilty of acts such as dishonesty. Here, the past
conduct of a servant is a material fact and should be disclosed to the other
employer. The case of London General Omnibus Co v. Holloway (1912) had
similar facts and the Court held that an omission to mention such facts would
imply that such facts do not exist. Therefore, it can be noted that this
contract which has been induced by non-concealment of material facts is
invalid.
Proving fraudulent intent

An important question here is how can we prove that the contracting party
remained silent and did not disclose the relevant material facts? The party
who has suffered damages must show that:
1. The defendant did not disclose material facts pertaining to the

subject matter of the contract.
2. The defendant had full knowledge of the facts.
3. The defendant’s failure to disclose the facts led to a false impression
in the plaintiff’s mind.
4. The defendant had the knowledge that his failure to disclose the
material facts would cause a false impression and the plaintiff would
rely on the false impression.
5. The plaintiff relied on the impression and suffered damages as a
consequence.
Proving defendants’ intention of deceiving the

plaintiff
The defendant’s intent can be proved by obtaining the relevant documents
from the possession of the defendant. After the fraud, the plaintiff must
consider the following to prove his claim:
1. Hold order
The defendant has to be immediately notified of the duty imposed on him to
preserve all the relevant documents about the case, particularly all the
information which has been stored electronically. This electronic data could
be in the forms of texts and conversations which have been shared with the
plaintiff.
2. Document collection
The written documents in possession of the defendant must be collected. The
plaintiff relying on these documents must show that the defendant concealed
information and committed fraud.
3. Buzz words
There must be a search for words such as “let’s discuss” while reviewing the
defendant’s documents which can indicate fraud. An effort to conceal can
also be implied by messages requesting the plaintiff to discuss over the
phone. Words that raise ethical questions, jokes about misconduct, and
hostility can also suggest fraud.
4. Third-party subpoenas
Subpoenas must be used liberally to ensure the disclosure of a complete
record in the form of audit work papers, bank statements, and the
defendant’s communication with supplies, lenders, and other relevant
counterparties. These would help in ascertaining the contradicting statements
that were presented to the plaintiff.
If the court is willing to ‘inspect’ evidence that signifies non-disclosure, mere

silence is sufficient to prove that fraud has been committed.
Remedies
In case of a silent fraud, the plaintiff has the following two remedies:
1. The plaintiff can rescind, that is, cancel the contract and obtain
compensation for the losses he has suffered.
2. Affirm the contract and sue the defendant to receive damages. (for
example, when the value of the asset has decreased)
Depending upon the facts and circumstances of the case, the malicious or
criminal intent of the defendant can be proved. Criminal charges can be then
brought against the defendant which can result in consequences like criminal
fines or even a jail sentence for the defendant.
Damages
In Dambarudhar Behera v. State of Orissa (1980), the plaintiff rescinded the
contract due to misrepresentation of facts by the other party. The plaintiff
claimed damages as the expenditure occurred in the formulation of the
contract and the loss of earnings till the time the plaintiff got to know about
the misrepresentation. The Court awarded damages to him and held that the
damages given for fraudulent misrepresentation should not surpass the
losses which would have occurred had the facts not been misrepresented.
In Smith New Court Securities Ltd v. Scrimgeour Vickers (Asset

Management) Ltd (1996), Lord Browne-Wilkinson formulated certain
principles to assess adequate damages for fraudulent misrepresentation:
1. The defendant is bound to make amends for all the damage directly
flowing from the transaction or the contract.
2. The defendant must make amends for all the foreseeable damages
caused emanating from the contract or by the transactional.
3. The plaintiff is entitled to recover by way of damages the full price
paid by him, but he must give credit for any benefits which he has
received as a result of the transaction.
4. As a general rule, the benefits received by the plaintiff would include
the market value of the property acquired at the date of the
transaction. But this rule is not to be inflexibly applied when
applying the rule would obstruct the plaintiff from recovering
compensation for the damage he suffered.
5. The plaintiff is entitled to recover consequential losses caused by
the transaction or the contract.
The plaintiff must have taken all the

reasonable steps to mitigate the loss
once he has discovered the fraud.
Punishment
The punishment for committing fraud is non-compoundable as the
punishment is both fine and imprisonment. With the advancements in
technology, online frauds have increased, and subsequently, committing
fraud has become a grave offense in the eyes of law.
Section 447 of the Companies Act, 2013 provides punishment for fraud.
About 20 Sections of the Act have been dedicated to elucidating the frauds
committed by the directors of an organization/entity, auditors, key
managerial personnel, and/or the officers of the company. The Act goes
beyond ascertaining professional liability and expands it to personal liability if
a company is found to contravene any of the provisions of the said Act.
Under Section 447, if an individual is found guilty of fraud he can be

punished with imprisonment ranging from 6 months to 10 years. He shall
also be liable to fines ranging from the amount involved to three times the
amount involved in the fraud. In case the circumstances of the fraud are
against the interest of the public, the wrongdoer can be punished with
imprisonment for a minimum period of three years.
Section 7(5) states that any individual who suppresses material information
or furnishes false information or incorrect particulars he is aware of, in the
documents filed with the Registrar for the purposes of registering the
company, he shall be subject to punishment under Section 447.
Conclusion
Hence, mere silence to certain material facts affecting the wish of an
individual to enter into the contract would not amount to fraud. But if their
silence can be treated as speech or the individual has a duty to inform the
other party of the facts, silence would amount to fraud. Mere silence can
result in fraud because of non-disclosure of relevant facts by one party
causing damages to the other party.
A desperate financial need may be the cause of frauds prevalent all across
the globe. Punishment for fraud is quite minimal and should be replaced with
a harsh penalty to instill a moral conscience on the citizens to not be swayed
by the rewards of fraud. The public must be aware of prevalent scams and
must verify whether the information provided by the party is credible or not.
Elimination of fraud is not an instantaneous event but society as a whole has
to pay the price.
Mistake Under Indian Contract

Act, 1872
Introduction
‘Mistake’ in general meaning is something that does not work out in search of
a solution. Word ‘Mistake’ is used interchangeably with ‘error’. In law,
misunderstanding or erroneous belief about a material fact may prevent the
formation of a valid contract. According to Section 10 of the Indian Contract
Act 1872, Free consent of parties is an essential element of any
contract. Section 14 of the Indian Contract Act states that ‘Free consent means
consent not caused by coercion, undue influence, fraud, misrepresentation and
mistake’.
A mistake means ‘believe in those things which do not exist in reality’. Thus,
the mistake is an erroneous belief.
Definition of Mistake
‘Mistake’ is not defined in the Indian Contract Act. Section 20, 21 and 22 deals
with the concept related to mistake. ‘Mistake’ can be defined as any action,
decision or judgement that produced an unwanted and unintentional result. A
Mistake is said to have occurred where parties intending to do one thing by
error do something else. Phillips v. Brooks Ltd is an English contract law case
concerning mistake. It was held in this case that a person is deemed to
contract with the person in front of them unless they can substantially prove
that they instead of them intended to deal with another person.
Types of Mistake
A mistake is of two types:
• Mistake of Law,
• Mistake of Fact.
Mistake of Law
Mistake of Law means any contract which is performed by parties without
knowing the law (or by ignoring the law), which is essential for that
contract. Section 21 of the Indian Contract Act deals with ‘effect of mistake as
to law’.
Grant v. Borg
In this case, the person was not knowing the clauses of the Immigration Act
1971, for staying beyond the time limit by the leave. Here, he cannot apply
for defence under the mistake of law.
Mistake of Law can be of two types:
• Mistake of Indian Law: “Ignorantia Juris non excusat” is a Latin

maxim which means “Ignorance of the law is not excused”. If a person
takes part in a contract without knowing any specific provisions of
Indian Law (which is essential for that contract), then Contract is not
voidable because everyone is supposed to know the law of his
country. For example: According to the provisions of Indian law, we
have to recover the amount of loan within 3 months from the due
date, after that time-barred debt is imposed. Now if we do not show
any interest in the recovery of loan amount during these 3 months
because of not knowing the law (mistake of law), then we can not
take it up as an excuse or defence.
A and B make a contract grounded on the erroneous belief that a specific debt
is barred by the Indian Law of Limitation, then the contract is not voidable.
A murdered B, A cannot apply for the defence of mistake of law that is; he was
not aware of law related to the murder.
• Mistake of Foreign Law:- If a person takes part in a Contract without

knowing any specific provisions of Foreign Law (which is essential for
that contract), then that mistake is treated as a mistake of fact i.e,
the contract is void if both the parties under a mistake as to a foreign
law because one can not be expected to know the law of other foreign
countries.
Mistake of Fact
Mistake of fact means any contract which is performed by parties without
knowing any material fact (or ignoring the fact), which is essential for that
contract. Section 20 and 22 of the Indian Contract Act deals with ‘Mistake of
Fact’. Mistake of Fact is of three types: Bilateral mistake, Unilateral mistake
and Common mistake.
In the case of The State of Maharashtra vs Mayer Hans George, A is an officer

of the court and he is ordered to arrest Y. A arrests Z by mistake, as he believes
Z is Y. Here, A can take the base of bona fide intention as a defence in the
mistake of fact.
Bilateral Mistake
According to Section 20, “Where both the parties to an agreement are under
a mistake as to a matter of fact essential to the agreement, the agreement is
void”. In simple words, if parties are involved in an agreement without knowing
any essential facts related to the agreement, then it is considered as a Bilateral
Mistake and that agreement will be void. For example- A agrees to sell to B
any goods supposed to be on its way from America to Bombay. It is found that
before the day of the bargain, the ship containing goods had been cast away
and the goods were lost. But, neither party was aware of these facts. The
agreement is void.
A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead

at the time of the agreement, but both parties were ignorant of the fact. The
agreement is void.
Essentials elements of Bilateral mistakes are:
(i) Both parties must be under a mistake.
(ii) The mistake must be of fact, not of law.
(iii) The mistake must be related to an essential fact.
What facts are essential in Bilateral Mistake?

Now, It is very important to know what are the essential facts which make an
agreement void. An agreement is a void where there is a bilateral mistake as
to the subject matter. A bilateral mistake as to the subject matter includes the
following:
1. Mistake as to the existence of subject matter.

2. Mistake as to the identity of subject matter.
3. Mistake as to the quantity of subject matter.
4. Mistake as to the quality of subject matter.
5. Mistake as to the price of subject matter.
6. Mistake as to the performance of subject matter.
Mistake as to the existence of subject matter

‘A’ and ‘B’ are involved in a contract to sell a horse in a specific amount. But,
horse dies before the contract is performed and both the parties (A and B) are
unaware of this fact that the horse does not exist. In this case, the Contract is
void.
Mistake as to the quantity of subject matter

‘A’ and ‘B’ made a contract in which a transaction of 200 pens in return of
some amount involves. But 100 pens are sold early by the brother of ‘A’ before
the contract could be performed and both the parties (A and B) were unaware
of this fact that only 100 articles do exist. In this case, the contract is void.
Mistake as to the quality of subject matter

‘A’ and ‘B’ made a contract together in which ‘A’ sold his car in return of some
amount to ‘B’. They believed that the car is for racing purpose but the car was
for tourism purpose. In this case, the Contract is void.
Mistake as to the price of subject matter

‘A’ and ‘B’ made a contract to sell things in consideration for some money
which was not a valid amount and both the parties (A and B) are unaware of
this fact. In this case, the Contract is void.
Matter as to the identity of subject matter

‘A’ and ‘B’ made a contract in which ‘A’ promise to sell his car to ‘B’. ‘A’ has
two different types of car (one for racing and other for tourism purpose). Here,
the real identity of the car is not clear and both the parties are thinking about
different types of car. In this case, the Contract is void.
In the case of Cundy v Lindsay, it is held that contract as a mistake as a matter

of identity will be automatically void.
Matter as to the possibility of subject matter

Sometimes, a contract is made but during the performance of the same, we
come to know that it is impossible to fulfil the performance of the contract.
The agreement is void where there is a mistake as to the possibility of
performance. Impossibility is an excuse for non-performance of a contract.
Impossibility can be of two types:
• Physical impossibility: Any performance of the contract when

physically impossible, can be taken up as an excuse for non-
performance of duties under a contract and contract will be void. For
example- a painter made a contract with a person to paint a house
but before the performance of duties, the house burns. Now, it is
impossible for the painter to perform his duties under the contract.
Thus, it is considered as an excuse for non-performance of duties.
• Legal impossibility: Any performance of the contract is when legally
impossible, can be taken as an excuse for non-performance of duties
under a contract and contract will be void. For example- any
amendment made by legislation which makes it impossible to fulfil
the performance of duties under the contract.
Unilateral Mistake
According to Section 22, a contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to a matter of fact.
Such a mistake does not invalidate the agreement. For example, ‘A’ and ‘B’
made a contract in which only ‘A’ was under a misbelief for any product which
is in the transaction. Then, the contract is not voidable for ‘A’ and will be
classified as a valid contract.
Cases in which Unilateral Mistake makes a contract void and voidable

There are a few cases which make a contract void and voidable, merely by a
mistake of the fact of a one-party.
Unilateral Mistake makes a contract voidable

If any unilateral mistake is induced by fraud or misrepresentation, then the
contract is voidable for that party who has done the mistake in the contract.
In simple words, if ‘A’ creates such types of situations and do such types of
activities in order to deceive ‘B’ and ‘B’ has also done a mistake as a result of
A’s action and made a contract with ‘A’. Then, Contract will be voidable at the
option of ‘B’.
Unilateral Mistake makes a contract void

Unilateral mistake makes a contract void in two cases:
1. Unilateral mistake about the nature of Contract: If a person wants to

enter a contract but he enters into an altogether different contract by
mistake. For example- Suppose, any illiterate person gives
thumbprint on any papers by mistake, then that contract formed
because of thumbprint will be void.
2. Unilateral mistake about the identity of the person: If ‘A’ wants to
enter into a contract with ‘C’ but enters into a contract with ‘B’ by
mistake. Then, the contract will be void. For example- If ‘A’ is a
regular customer of ‘C’. He gives order to ‘C’ to deliver the goods. But
he was not aware of the fact that ‘B’ is the new owner of the shop
and he makes a contract with ‘B’ by mistake. In this case, the contract
will be void.
Common Mistake
When both parties are mistaken for the facts related to the subject matter of
the agreement. The court can declare the entire agreement as void in such
kind of mistake. If the contract contains a small error relating to the subject
matter, then there is a very less chance that the court will rule that the contract
is void. If any part of the contract that does not contain a mistake is still valid.
Bell v Lever Brothers Ltd is an English contract law case decided by the House
of Lords. Within the field of mistake in English law, it holds that common
mistake does not lead to a void contract unless the mistake is fundamental to
the identity of the contract.
Conclusion
According to Section 10 of the Indian Contract Act, 1872 ‘All agreements are
contracts if they are made by the free consent of parties competent to contract,
for a lawful consideration and with a lawful object’. According to Section 14 of
the Indian Contract Act, ‘Consent is said to be free when it is not caused by
mistake subject to provision of Section 20, 21 and 22. The mistake can be of
two types: Mistake of law and mistake of fact. The mistake of fact is an excuse
under non-performance of duties under contract but the Mistake of law is not
an excuse under non-performance of duties under the contract.
Unlawful Consideration and Object
What do you mean by unlawful consideration and

object?
Meaning of Unlawful Consideration and Object: – Two things are necessary for a
contract to be a valid contract i.e., a valid object and a valid consideration. If they
are not, hence it is Unlawful consideration. If the object and
consideration are not valid, then the contract is said to be void.
Therefore the Indian Contract Act provides us with the parameters that make up
such legitimate consideration and objects of contract.
Section 23 of the Indian Contract Act clearly states that the consideration or
object of a contract is considered a valid consideration or object and if they are
not, the object and consideration shall be deemed to be unlawful. Section 23 of
the Indian Contract Act, 1872, specifies three issues, for example, consideration
for the agreement, the object of the agreement and the agreement in essence.
Section 23 makes a restriction on the freedom of an individual in connection to
going into agreements and subjects the privileges of such individual to the
overriding contemplations of public policy and the other provisions articulated
under it. Section 23 additionally discovers its bearing from Section 264.
The word “Object” used in Section 23 indicates and signifies “purpose” and
doesn’t imply importance in a similar sense as “consideration”. Therefore,
despite the fact that the consideration of an agreement might be legal and
genuine, that won’t stop the agreement from being unlawful if the purpose
(object) of the agreement is illicit. Section 23 limits the courts since the section
isn’t guided by the thought or motive, to the object of the exchange or
transaction fundamentally and not to the reasons which lead to the equivalent.
What consideration and object are unlawful?

The consideration and objects which are unlawful are given as follows: –
1. Specifically Forbidden by Law;
2. Such a nature that they would defeat the purpose of the law;
3. Fraudulent Consideration or Object;
4. Defeats any rules in effect;
5. Involves injury to any other person or property;
6. The courts regard them as immoral and
7. Opposed to Public Policy.
Explanation: –
1. Forbidden by law
a. When the object of the contract or the consideration is prohibited by law,
those consideration or objects are not lawful anymore. They become illegal.
So any such contract can no longer be valid.
b. The unlawful consideration of the object includes acts that are specifically
punishable by law. It also includes those which the appropriate authorities
prohibit through rules and regulations. But if the rules made by such officers
are not in conformity with the law, then these laws will not apply.
c. For Example: – ‘A’ get a license from the Forest Department to cut grass of a
certain area. Department officials told him that he could not pass on such
interest to any other person. But there is no such law in the Forest Act. So ‘A’
sold his interest to ‘B’ and the contract was deemed valid.
2. Consideration or Object Defeats the Provision of the Law
a. This means that if the contract is trying to defeat the intent of the law. If the
courts find that the real purpose of the parties to the agreement is to fail the
provisions of the law, then the contract will set aside.
b. For Example: – ‘A’ and ‘B’ enter into an agreement, where ‘A’ is the debtor
and ‘B’ will not accept any limitation. However, this is done, however, to
defeat the intent of the Limitation Act, and therefore the courts may consider
the contract void due to the unlawful object.
3. Fraudulent Consideration or Object
a. A lawful consideration or object can never be fraudulent. Agreement with
Unlawful fraudulent considerations or object is void by nature.
b. For Example: – ‘A’ decides to sell goods to ‘B’ and smuggled out of the
country. This is a fraudulent consideration which makes the contract void. If
‘A’ does not deliver goods on his promise, then ‘B’ cannot recover the money
under the law.
4. Defeats any Rules in Effect
a. If the consideration or the object is against any rules in effect for the time
being in the country, then it will not be a lawful consideration or objects. So
the contract thus formed will not be valid.
5. When they cause Injury to another Person or Property
a. In legal terms, an injury means wrongful harm by one offender to another
person. Therefore if the object or consideration of the contract cause damages
another person or property, it would be unlawful consideration.
b. For Example: – The contract to publish a book that infringes another person’s
copyright will be void. This is because the consideration here is unlawful and
injures another person’s property, i.e., its copyright.
6. When Consideration is Immoral
a. If an object or consideration is considered immoral by the court, then such
object and consideration are immoral.
b. For Example: – ‘A’ lent money to ‘B’ to get divorced from her husband ‘C’ and
there was an agreement between ‘A’ and ‘B’, that if ‘B’ get divorced then ‘A’
will get married to ‘B’. But the court ruled that ‘A’ cannot recover money from
‘B’ as the contract is void due to unlawful consideration.
7. Consideration is opposed to Public Policy
a. For the betterment of the community, we prohibit certain contracts in the
name of public policy. But in this case, we do not use public policy in the
broad sense. If that were the case, it would have motivated the individual’s
personal freedom to enter into contracts. Therefore, public policy is used in a
limited scope for consideration and object of the law.
b. So let’s look at some agreements that are against public policy: –
o Trade with the Foreign Enemy: – Entering into a contract with
the person of a country with which India is at war is a void
agreement. For example, a businessman who was contracting with
a Pakistani citizen during the Kargil War.
o Stifling Prosecution: – This is universal that the natural course of
law and such contracts are void. For example, A agrees to sell land
to B if he does not participate in criminal proceedings against him.
o Maintenance and Champerty: – Maintenance agreement is when
a person promises to maintain a suit in which he has no real
interest. And when a person agrees to assist another party in
litigation for damages or a portion of the proceeds, then the
Champerty occurs.
o An agreement for traffic in public offices.
o Agreement to create a monopoly.
o An agreement for brokerage marriage for the rewards.
o Interference with the Courts: – An agreement which is intended
to induce any judicial or state officials to do corrupt work and
interfere in legal proceedings.
Case laws
1. Saregama India Ltd. vs. Suresh Jindal and Ors. AIR 2006
Cal 340, 2007 (34) PTC 522 Cal
It was held that in future work the owner of the copyright can withdraw
the copyright of any person in whole or in part for the copyright or any
part thereof or once the assignment of copyright has been made. The act
is treated like a proprietor of the copyright.
2. Bovard vs. American Horse Enterprises

The California Court of Appeals for the Third District refused to execute an
agreement for the payment of promissory notes used to acquire the drug-
making organization and similar goods. Even though the items sold were
not, in fact, illegal, the court refused to honour the agreement for public
policy concerns.
All about discharge of a

contract
Introduction
A contract is a legally binding agreement between two or more parties,
where one agrees to do or refrain from doing something in exchange for
consideration. Discharge of contract means terminating the contractual
relationship between the two or more parties who entered into the contract
previously. When the rights, obligations and duties of the parties come to an
end it is known as the discharge of contract. Discharge of contract also
ceases the legally binding power of the contract. Therefore, once a contract
has been discharged the parties are no more obligated to each other and the
contract becomes void
Various modes of discharge of contract
Discharge by performance
A contract can be discharged by performance and it is the most common
form of discharge of contract. A contract will be discharged if the duty stated
in the contract has been fulfilled by the parties. If only one person in a
contract performs the promise which is mentioned then he alone is
discharged. There are two types of discharge of a contract by performance.
For example; A and B enter into a contract that A will pay B Rs 1,000 if B
delivers a package to C’s house. B does the agreed part specified in the
contract and upon doing it A pays B the mentioned amount in the contract.
Thus, the contract is discharged by performance since both parties
performed the specified task in the contract.
Actual performance
In this case both the parties in a contract must perform their promises.
Unless the Indian Contract Act, 1872 or any law at the time being prohibits
the parties from performing their promises. In case either party dies or is
unable to fulfil the promise then the representatives of such party shall be
liable to perform the promise laid down in the contract.
Attempted performance
When the promisor offers to give his performance under the contract, but the
promisee refuses to accept the same, then it amounts to discharge by
attempted performance.
Discharge by mutual agreement

In this case, the parties to a contract do not perform the promise stated in
the contract if they arrive at a mutual agreement. This requires substituting
or altering the existing contract with a new one.
Illustration: ‘P’ owes a certain sum of money to ‘Q’ under a contract, but they
arrive at a mutual agreement that henceforth ‘R’ will pay back the money
owed to ‘Q’. This results in a mutual discharge of the contract between ‘P’
and ‘Q’ and a new contract is formed between ‘R’ and ‘Q’.
Novation
It occurs when a contract is substituted for the old contract between the
same or new parties. In order to enforce novation, the following conditions
must be followed. It is laid down in Section 62 of the Indian Contract Act,
1872.
• There must be a valid reason for substituting the contract.
• Consent of all the parties is required.
• The old contract must be substituted before the expiry or breach of
the contract.
In the case of Manohur Koyal v. Thakur Das(1888), the defendant failed to
pay the agreed upon sum to the plaintiff on the due date stated in the
contract. However, the defendant promised to pay Rs. 400 to the plaintiff
and to execute a fresh kistibundi bond. The plaintiff agreed to this but the
defendant failed to pay that amount consequently, the plaintiff sued the
defendant. The Calcutta High Court stated that since the new bond was
created after the breach of the original contract, therefore the contract
cannot be discharged by novation but by breach of contract.
Remission
Remission occurs when parties to a contract accept a lesser amount or lesser
degree of performance than what was initially agreed upon in the
contract. Section 63 of the Act states that a party may;
• Remit the performance stated wholly or in part.

• Extend the time for performance.
• Accept any other kind of performance apart from the one mentioned
in the contract.
Illustration: Paul owes 10 lakh rupees to Peter but due to some unforeseen
circumstances Paul can only repay 6 lakh rupees to Peter within the
stipulated time period. But if Peter agrees to accept the amount which could
be paid by Paul and settle the debt then, Peter’s act of remission discharges
the contract.
Alteration
It means changing one or more contract terms, thereby discharging the old
contract and forming a new one. Alterations to a contract must take place
with the consent of all the parties to the contract. In the case, United India
Insurance Co. Ltd v. M.K.J. Corporation(1996), the Supreme Court held that
utmost good faith must be observed by the contracting parties and the duty
of good faith is of a continuing nature even after the completion of the
agreement no material alterations can be made to the contract without the
mutual consent of the parties.
Rescission
Rescission takes place when the parties in the contract agree to dissolve the
contract. In this case, the old contract stands discharged and no new
contract is formed.
Waiver
The term waiver means the abandonment of a right. A party to a contract
may have their rights specifically stated under the contract which also helps
to release the other party from the contract and the contract is discharged.
Merger
When an existing inferior right of a party, in respect of a subject matter,
merges into a newly acquired superior right of the same person, in respect of
the same subject matter, then the previous contract conferring the inferior
right stands discharged by the way of merger.
Discharge by lapse of time

A contract will be discharged if the performance is not completed within the
given time period. This might also result in a breach of contract. In that case,
a person might file a suit under the court of law stating that his rights have
been infringed and also claiming to enforce his rights. The individual whose
rights have been breached can file a suit under the Limitation Act, 1963.
For example; A had to deliver fresh fruits to B’s storehouse within a period of
two days but due to A’s irresponsibility, he delivered the fruits after two
weeks. Therefore, in this case, the contract will be discharged as the required
performance was not completed within the specified time.
Discharge by operation of law

This mode of discharge of contract does not allow the fulfilment of the
promise laid down in the contract by the provisions of law. Situations such as
death, insolvency, merger, etc. do not enable the fulfilment of the promise,
hence it results in the discharge of the contract.
Discharge by supervening impossibility

Discharge of a contract by supervening impossibility is a contract that has
become impossible or illegal to perform. In these cases the contract becomes
void. It is also known as the doctrine of frustration. Frustration occurs when
it is established that due to subsequent changes in circumstances, the
contract has become impossible to perform or it has been deprived of its
commercial purpose. The ways in which it occurs are mentioned below;
• On the destruction of subject matter, a contract will be discharged

and no party will be held liable.
• If the performance of the promise mentioned in the contract
becomes unlawful then the contract will be void.
• A contract tends to be discharged on accounts of death or personal
incapacity.
• When the circumstances surrounding a contract change then it will
be discharged.
Discharge by breach
When a contracting party refuses or fails to perform or disables himself from
performing or makes the performance of the promise stated in the contract
impossible by his conduct, then the contract is said to be discharged by
breach. A party to a contract may discharge it by actual breach or
anticipatory breach.
When a default is committed by a party on the due date of performance it

amounts to an actual breach and when the party commits a default before
the due date of performance it amounts to an anticipatory breach.
Suit for specific performance

In this case, where the damage or loss suffered cannot be measured in terms
of money the court, in such cases directs the defaulting party to perform the
contract specifically where the ordinary remedy by a claim for damages is not
adequate compensation. It is a discretionary remedy. The instances where
the court orders discretionary remedy:
• Where the act in itself is such that monetary consolation for its non-
performance is not adequate.
• Where it is not probable that monetary compensation will be
available.
• Where no standard is available to ascertain the value of the actual
harm caused by non-performance.
Suit for quantum meruit

In the legal sense, the term quantum meruit means ‘payment in proportion
to the work done’. In other words, quantum meruit means that a person can
recover compensation in proportion to the work done or service rendered by
him. It is known as a quasi-contractual remedy. The claim on quantum
meruit arises in the following cases:
• When a party performs a part of the contract, but the other party
breaks it in between, then the injured party can claim compensation
for the work done or the service rendered.
• When something has been done non-gratuitously.
• Where some work has been done and accepted under a contract
that is subsequently discovered to be void, then in such case, the
person who has performed the part of the contract is entitled to
recover the payment for the work done.
Exceptional cases when a contract is not

discharged
The doctrine of frustration or supervening impossibility does not apply to the
following cases mentioned below.
1. When in any case a situation arises that makes the performance of

the certain promise mentioned in the contract very difficult to be
performed, then in that situation, it makes the promise challenging
to be fulfilled but the contract is not discharged.
2. Commercial hardships make the contract unprofitable but it does
not discharge a contract.
3. Strikes, lock-outs, civil disturbances and riots do not discharge the
contract unless there is a clause in the contract specifying that in
such event the contract will be terminated.
4. A contract is not discharged due to the self-induced incapacity of the
parties to a contract.
5. In a contract where performance is relied upon by a third party, it
will not be discharged due to the failure or default of the third party.
Difference between discharge, rescission

and termination of a contract
Discharge of contract takes place when the parties to a contract have fulfilled
and performed their obligations as stipulated and negotiated in the contract.
It is an ideal course of action as the parties to the contract have attained the
obligations and performed the agreed upon duties.
When a contract is formed under fraudulent circumstances, the party who
was defrauded will not be expected to fulfil the obligations stated in the
contract. The fraud may involve overt, intentional fraud, a misrepresentation
of facts or circumstances, or a material omission. Despite the type of fraud,
the party may end the contract without any consequence. This kind of
termination of a contract is known as rescission.
A contract can be terminated by discharge or rescission however, certain

circumstances outlined in the contract may enable the parties to a contract
to terminate the said contract even if all the duties and obligations stated in
the contract have not been fulfilled. Further, sometimes a contract can be
terminated due to a change in circumstances thus making it impossible to
fulfil.
Conclusion
Thus we can understand that discharge of contract refers to the contractual
relationship coming to an end when the obligations and duties have been
fulfilled by the parties to a contract. In this case, the parties are free from
the obligations of the contract. As mentioned earlier there are various modes
of discharging a contract but the best way to do it is by performing the
promise within the stipulated time stated in the contract as the other modes
are quite unpleasant ways to release the parties from duties because it leads
to damages.
Performance of contract
Introduction
The term “offer” has been defined under Section 2(a) of the Indian Contract
Act, 1872. An offer is an expression of willingness made by a person to do or
abstain from doing any act or omission with a view to obtaining the assent of
the person to whom such an offer of act or abstinence is made.
The term performance in its literal sense means the performance of a task or
action. In its legal sense “performance” means the fulfilment or the completion
of the obligations which they have towards the other party by virtue of the
contract entered into by them. For example, ‘A’ and ‘B’ enter into a contract,
the terms of the contract state that A has to deliver a book to B on payment
of the consideration of five hundred rupees. Here, B pays to A rupees five
hundred and as stipulated in the contract, A delivers him the book.
Section 37 of the Contract Act talks about performance. According to the

Section, there are two types of performance which are:
• Actual performance: Actual performance of the contract means
the actual discharge of the liability or obligation which a person has
undertaken to perform and there remains no other task which he is
obliged to discharge under the promise. He is said to have made the
actual performance of the promise.
• Attempted performance: At times when the performance
becomes due. The promisor is not able to discharge his obligation or
perform his duty because he is prevented by the promisee in doing
so. This situation where the promisor actually intended to perform
his obligation or discharge his duty but is prevented from doing so
by an intervening disability is known as the attempted performance
of a promise.
Attempted performance is also known as Tender. A tender can be of two types:
• Tender of goods and services: The discharge of the contract to

deliver goods and services is completed when the goods are
tendered for acceptance in accordance with the terms of contact. If
the goods and services so tendered are not accepted they are to be
taken back by the offeror and he is discharged from his liability.
• Tender of money: where the debtor tenders the money which is to
be paid to the creditor but the debtor refuses to accept the money.
The debtor is not discharged from the lability to pay back the
money. Therefore, a tender of money can never result in the
discharge of debt.
This article exhaustively deals with the tender of performance and its different
aspects, the performance of a contract and joint promises and joint liabilities
arising there
Tender of performance
Section 37 to Section 39 specifically deals with the performance of the contract
by the parties thereto. According to Section 37 of the Indian Contract Act,
1872 the parties to a contract are under the obligation to either perform or
offer to perform the promises which have been agreed upon under the
contract. Section 2(b) of the Indian Contract Act defines the meaning of
promise as a proposal made by the offeror which has been accepted by the
offeree. Thus, each party is under a legal obligation to perform his obligation
which has been agreed upon under the terms of the contract. Unless the terms
of contract expressly exempts or dispenses the performance of obligation upon
the person.
The promises made by the parties to the contract after their death binds their
representatives provided that no contrary intention appears from the terms of
the contract. For example, if there is a contract between two persons ‘A’ and
‘B’ in which A promises to deliver to B some goods on the payment of a certain
amount of money by B on a particular day. However, if A dies before the
completion of contract, in that case, A’s representative will be bound by the
promise made by him and therefore they are under the obligation to deliver
goods to B and B is also under the obligation to pay the specified amount to
A’s representative.
However, in the case where the promise is made with regards to the personal
skills and art of the person then his representative will not be bound by the
promise made by him. For example, in the case where A promised B to make
him painting on a specified day for a certain price. A dies before the
performance of the contract. Neither the representatives of A are not bound
by the promise made by A nor B can compel the representative for the specific
performance of the promise made by A.
The obligation of parties to perform

The obligations in a contract are those duties by which the parties to the
contract have to abide by. In a contract, the parties to the contract usually
exchange something of value in the eyes of the law. The thing which is decided
to exchange can be the product, services, money, etc. An example of contract
obligations is with the sale of a product such as an automobile. One party has
the obligation to transfer ownership of the car, while the other has the
obligation to pay for it. The contract will specify the terms that regulate the
obligations, such as the method and amount of payment, and the time or place
of delivery.
In the case of M. Kamalakannnan v. M. Manikanndan, there was a contract

between the plaintiff and the defendant for the sale of the property. The
plaintiff, in this case, retained some part of the money which was stipulated
under the terms of the contract in order to compel the defendant for the
performance of some of the obligations like vacating the property which was
occupied by the tenants and handing over the vacant property to the plaintiff.
The contention by the defendant was that non-payment of some part of the
consideration resulted in the infringement of the terms of the contract.
In Geo-Group Communications INC v. IOL Broadband Ltd, the parties to the

contract signed an agreement and they fully acted the terms of the
agreements so much so that there arose no further need for the documents to
be executed any further. The agreement was described as one of the
preliminary and tentative drafts made for the purpose of discussion and
deliberation only. When the contract was challenged in the court of law, the
court held that the agreement was valid and it entitles the claimant for relief.
Submission of tender tantamounts to a proposal

When in response to an invitation a lender is submitted it is considered to be
a proposal to contract and not the contract itself. In M/S Great Eastern Energy
vs M/S Jain Irrigation Systems Ltd, the tender specified the validity period for
four months. The court held that after the expiry of the period of tender, no
acceptance could be made. The forfeiture of the security deposit amount by
acceptance of the tender after the expiry of its validity period and failure of
performance by the tenderer was not improper.
Promises bind the representatives of the

promisor
The proviso attached to Section 37 of the Act provides that in case of the death
of the promisors the representative of such promisors would be bound by the
promises made by them unless a contrary intention appears from the terms of
the contract. In the case of Basanti Bai vs Sri Prafulla Kumar Routrai, that in
case a person dies without leaving behind any legal representative, then, in
that case, the liability to perform the promise on his behalf would fall upon the
person who acquires interest over the subject matters of the contract through
that deceased party. The Cuttack High Court, however, held that in the present
case, the plaintiff was not able to enjoy the above mentioned legal proposition
as she was unable to prove the existence of the agreement which was alleged
by her.
Clause for renewal

The Clause for renewal is the provision by which the terms of the contract
initially agreed upon are renewed or recommenced.
In Hardesh Ores Pvt. Ltd vs M/S. Hede And Company, the terms of the contract
contained a renewal clause. The party which have the authority in accordance
with the terms of the contract to renew the same exercised it. However, the
other party refused to accept the new terms caused by renewal. The Supreme
Court held that in such a case the best course of action for the party who is
empowered by the terms of the contract to renew the terms of the contract is
to get the renewal declared and enforced by the court of law or to get the
declaration of renewal of contract by the court.
Tender of performance
The offeror should offer the performance of an obligation under the contract
to the offeree. The offer is made is called the “tender of performance”. It is
the discretion of the promisee to accept the offer. In case the promisee chooses
not to accept the offer then neither the offeror could be held liable for the non-
performance of the terms of the contract nor he loses his rights under the
terms of the contract. Therefore, it is a settled principle that non-acceptance
of the tender of performance would result in the exclusion of the promisor from
further performance of the terms of the contract and he is also entitled to sue
the other party for not performing the terms of the contract. Section 38 of the
Contract Act makes it clear that a tender of performance tantamounts to
performance. Every tender of performance must fulfil a certain essential
condition:
• Section 38(1): The offer should be unconditional;

• Section 38(2): The offer must be made at a proper time and place
so as to allow the party to have a reasonable time for ascertaining
that the person who is making the offer to him is competent to enter
into a contract;
• Section 38(3): If the offer to the offeree is such as to deliver some
goods addressed to the offeree then it is the duty of the offeror to
provide reasonable time to the offeree in which he can ascertain that
the goods offered to him is the same by which the offeror is bound
under the terms of the contract.
Tender of performance should be

unconditional
Subsection 1 of Section 38 states that a tender to valid must be unconditional
which means that it should not be accompanied with any clause, provision or
condition precedent or subsequent. In Haji Abdul Rehman Haji Mahomed, the
court, in this case, explained the situations in which the tender becomes
conditional. According to the court, when a tender does not follow the terms
of the contract which were originally drafted and agreed upon by the parties,
the tender becomes conditional. The reason for making it a necessary is
because of the fact that it is not reasonable to compel a party to accept the
modified or altered terms of contract which were not initially agreed upon by
the parties. For example, if A offers to pay B a certain sum of money if B agrees
to sell certain goods to him. It is a conditional tender and therefore it is invalid.
Similarly in a case where A sent a single cheque for two items, only one of
which was due at the time, while the other was payable after some time. The
cheque being one and indivisible could be accepted as whole or not at all. It
was held that the promisee was within his right in rejecting cheque.
The tender of performance must be made

at a proper time and place
Section 38(2) of the Act mandates that the tender of performance should
necessarily be made at a time and place and under such circumstances so as
to afford the person to whom the offer is made a reasonable opportunity to
ascertain that the offeror is able and bound to do whatever he has promised
under the terms of contract to do.
In P.L.S.A.R.S., Sabapathi Chetty (Deceased) Vs. Krishna Aiyar, the court held
that generally, the parties to the tender of performance fix the time and place.
The tender of performance should mandatorily be made at the time and place
stipulated under the contract. If the performance is made within the stipulated
time and place then the promisor is under no further obligations.
In Startup v. Macdonald, the defendant purchased ten tons of linseed oil to be

delivered to the plaintiff within the last fourteen days of the month of March.
The plaintiff tendered the defendant at night on the fourteenth day. The
defendant however citing the lateness of the tender rejected the acceptance
of the tender. The court, in this case, held that the defendant should be held
liable for the breach of the terms of the contract and the contention made by
him that the late acceptance of the tender was made could not be entertained
because, although the acceptance was made lately still the acceptance, was
made before midnight.
In Afovos shipping co. v. R Pagnan, an international contract was entered into

by the plaintiff and defendant. The term of the contract provided that the
payment which formed the consideration of the contract should reach on the
14th day of the month, however, the defendant repudiated the contract before
the 14th day of the month. The court held that the defendant should have
delayed the repudiation of the contract till 14th of the month.
Section 138(2) of the Act also provides that the tender must be made under
such circumstances so as to allow the other party to get reasonable
opportunity to ascertain that the person who is making the tender is capable
and willing to fulfil all the conditions mentioned under the contract. Section
138(3) of the Act provides that the goods which are subjected to tender must
be same as mentioned under the description of the tender otherwise the tender
will be invalid.
In Dixon v. Clark the court held that the fact that payment was tendered and
refused in no ways discharges the debtor from his liability to make good of the
payment of a debt.
In Vidya Vati vs Devi Das, the principle of old standing which was given in the
above-mentioned case was endorsed. In the debtor was under the obligation
of paying back his loan in order to recover the vacant possession of his
premises and his tender was also rejected. However, the court held that debtor
was not released from the obligation to pay prior to his recovery of the
possession.
By whom contracts must be performed
Section 40 of the Contract Act contains provisions regarding the performance
of the contract. The Section provides that if by the terms of the contract it
appears that the intention of the parties to the contract was such that any
promise contained in it must essentially be performed by the promisor himself
and no other person on his behalf can perform his promise. In all the other
contracts the terms of which do not indicate any similar intention then in the
absence of the promisor for the performance of the promise any other
competent person can perform the promise on his behalf. For example where
A promises to B a certain sum of money. The money could be paid to B by A
personally or by any other authorized person authorized by A on his behalf. If
in the above case A dies without authorizing the person who can make the
payment on his behalf. Then his representative will be bound to make the
payment on his behalf or they can appoint any other person to do so.
Effect of accepting performance by the

third party
Section 41 of the Contract Act contains provisions regarding the effect of
acceptance of performance of promise by the third party. The Section provides
that where the promisee agrees to performance of a promise which is made to
him by the offeror, by the third party. He can not at a later point of time
enforce the contract against the promisor who initially promised to perform
the promise.
If the terms of the contract indicate that from the very beginning of entering
into the contract the parties to the contract intended specific performance of
the promise by the promisor himself. The effect of reflection of such intention
would be that the promise should essentially be performed by the promisor
himself and the promise can not be enforced against his legal representative
nor can his legal representatives can enforce the promise. This type of situation
can usually be seen in cases which involve the personal skills of the promisor
himself.
Generally, the rules laid down under Section 37 is that the promises of the
deceased promisor will bind his representatives. Therefore, the general
principle of the law of contract is that unless there appears a contrary intention
in the terms of the contract. The representatives of a deceased promisor are
bound by the promise of the deceased and the promises of the deceased are
enforceable against his representatives.
In the case of Kapur Chand Godha vs Mir Nawab Himayatalikhan Azamjah, the
court declared that the English and the Indian law differs substantially on the
point of performance of the contract by the representatives of the deceased
promisor, in the British law system, the rule is that the third party or the
representatives of the deceased promisor could discharge his obligations only
in the cases where it is clearly evident from the promise that it was the
intention of the parties while the formation of the promise to bind their
representatives in case any of the promisors dies, in Indian law, however, the
position with respect to the performance of the promise by the representatives
of the deceased on contrary to the English law and the same could be inferred
from the words of Section 41 of the Indian Contract Act, which leave no ray of
doubt that in cases where the appellants expressly declare the intention of the
performance of their promise from the third party, they can not afterwards
enforce the promise against the promisor.
Joint promises
Section 42 of the Indian Contract Act talks about the joint promises. When two
or more promisors agree to perform the terms of the promise together they
are said to have made a joint promise and the people who jointly agreed to
perform the promise are called the joint promisors. The section provides that
the promisors are jointly liable to fulfil the promise until the terms of the
contract provide anything to the contrary. The Section also provides that in
case of death of any one of the joint promisors his legal representatives will
be bound by the obligation under which the promisor was in his lifetime
Performance of joint promises

According to English law, in a case where one of the several joint promisors
dies. The surviving joint promisor would be bound by the rights and liabilities
of the deceased joint promisors until a single joint promisor is alive the
representatives of the promisor will not acquire any rights or liabilities. This
rule is sometimes considered to put the creditor in the loss as he has no
security of solvency of the creditors. This lacuna of the rule is filled by Section
42 of the Indian Contract Act.
Devolution of joint liabilities

Section 42 of the Indian Contract Act deals with the devolution of joint
liabilities. According to the Section in case, there are several joint promisors
involved in a contract by making a promise then during the joint lives of the
promisors they must fulfil the promise jointly. In case of death of any of the
joint promisor, the representatives of the deceased promisor along with the
surviving promisors should strive to fulfil the promise. On the death of the last
surviving promisor, the representatives of all the deceased promisors would
be jointly liable for fulfilment of the promise. However, this legal proposition is
subject to any private arrangement between the parties to the contract.
Devolution of joint liabilities
When two or more persons enter into a joint promise then unless a contrary
intention appears by the contract all promisors during their joint lives and after
the death of any of them their representatives will be bound jointly along with
the surviving promisor or promisors. After the death of all the promisors, the
representatives of all the promisors will be bound by the promise jointly
entered into by the deceased promisors.
This Section provides security to the promisee by assuring him that the
promisors would be bound by the promise made by them during their joint life
and after the death of either of the promisor, their representatives will be
bound by the promise made by the deceased promisor.
In Gannmani Anasuya & Ors vs Parvatini Amarendra Chowdhary, the court

held that Section 42 shifts the burden of the fulfilment of the promise on the
representatives of the deceased promisors. However, this liability is subject to
the express or implied prescription of such provision by the promisors. Such
prescription by the promisors could be inferred expressly or impliedly.
Joint and several liability

Subsection 1 of section 43 of the Indian Contract Act contains the important
facets of the joint promises. According to the Section when two or more
persons jointly make a promise. The promisee has the authority to compel any
of such joint promisors in the absence of the contract expressly prohibiting the
promisee to do so.
Each promisor may compel contribution

Subsection 2 of Section 43 provides that each of the promisors in a joint
promise may compel the other promisors to contribute equally with him in the
performance of the promise unless a contrary intention appears from the terms
of the contract.
Sharing of loss by default in contribution

Subsection 3 of Section 43 provides that in the case where any two or more
joint promisors makes default in making a contribution in the promise, then
the burden of loss must be borne by the remaining promisors and should make
good the loss suffered by the other party by contributing in equal shares.
The explanation attached to the Section provides that nothing contained under
Section 43 of the Indian Contract Act shall prevent the surety, from recovering
the money which he has paid on behalf of the principal nor the Section
empowers the principal from recovering anything from the surety on account
of the surety’s payment made on behalf of the principal.
Illustrations
Below are the different illustrations provided under Section 43 of the Indian
Contract Act:
• A, B and C jointly promised D to pay him 3000 rupees. D has the

authority to compel either A, B or C to make payment of 3000 rupees
to him.
• A, B and C jointly made a promise to D to pay him 3000 rupees. D
compels C to make complete payment of 3000 rupees. Initially when
A, B and C made the promise jointly each of them was liable to pay
D 1000 rupees. However, in the event of the complete payment by C,
C is entitled to recover from the other joint promisors, the amount
which he paid to D. here in this case, A is insolvent but he is capable
of making payment of half of what he was liable to pay to D therefore,
A is obliged to pay 500 rupees to C whereas B would be liable to pay
C, the share which was stipulated under the promise which was 1000
rupees and half of the sum which was defaulted by A that is half of
500 rupees. Therefore, B has to make payment of rupees 1250 to C.
• A, B, and C jointly promise to D to pay him 3000 rupees. A is
compelled to pay the entire sum of 3000 to D. C is not in the position
to pay anything to A in order to make him recover the sum which he
alone has to pay to D. in this case B has to pay the amount of sum
which he was under the obligation to pay to D along with that B also
has to pay half of the sum which C has defaulted to pay A, that is why
B has to pay to A rupees 1000 and rupees 500 which equals to rupees
1500.
• A, B, and C jointly promise to pay D rupees 3000. A and B are the
sureties to C, in case of inability of C to pay D which he owed to him,
A and B made the payment on his behalf. Here A and B can recover
the amount paid by them on behalf of C.
Section 43 of the Indian Contract Act lays down the following

three rules:
• Rule 1: When a joint promise without any express agreement to the
agreement, the promisee has the discretion of specifically making
only one of the joint promisors to pay the amount which was jointly
promised by the promisors to pay him. A, B, and C jointly promise
to pay D rupees 3000. A can compel either of the three promisors to
pay him the amount stipulated in the promise.
• Rule 2: Where a specific joint promisor was compelled to pay the
entire promised sum. Then he may compel the other joint promisors
to pay him the amount which they were obliged to pay to the person
to whom they had promised to pay the stipulated amount.
• Rule 3: Where one of the joint promisors due to his inability to
make payment defaults in making a contribution to pay the
stipulated amount, the remaining joint promisors must bear the cost
in equal shares. For example, A, B and C promise D to pay him
rupees 3000. In case C is unable to pay anything to D then the
amount owed by C must be borne in equal share by A and B. in case
C is able to pay half of what he is obliged to pay to D, the remaining
amount must be paid by A and B in equal shares to the person
whom they promised to pay the amount.
Release of one joint promisor

Section 44 of the Contract Act grants the Right to release to the creditor under
which he may release either of the joint promisors from liability. The section
provides that where the creditor has released either of the joint promisors from
the liability. The other joint promisors are not discharged from their liabilities
and they are still bound to fulfil the promise which they have made to the
person. The release of the promisor from his liability towards the promisee,
however, does not result in his release from the liability which he has towards
the other joint promisors.
Section 44 of the Indian Contract Act marks a departure from the common law
principle in which the release of one of the promisors from liability tantamounts
to the release of the other promisors from their liability towards the promisee.
Unless the promisee expressly provides for the preservation of rights against
them.
Conclusion
The term “offer” has been defined under Section 2(a) of the Indian Contract
Act, 1872. An offer is an expression of willingness made by a person to do or
abstain from doing any act or omission with a view to obtaining the assent of
the person whom such an offer of act or abstinence is made.
The term performance in its literal sense means the performance of a task or
action. In its legal sense performance means the fulfilment or the completion
of the obligation of the parties which they have towards the other party by
virtue of the contract entered into by them. For example, A and B enter into a
contract the terms of the contract states that A has to deliver a book to B on
payment of the consideration of five hundred rupees. Here, B pays to A rupees
five hundred and as stipulated in the contract, A in return delivers him the
book. Section 37 of the Contract Act talks about performance.
Impossibility of performance
and frustration of contract
Introduction
The entire topic of Frustration is elucidated from the Doctrine of
Frustration (§56) to Effects of Frustration (§65) as mentioned in The Indian
Contracts Act.
Initial impossibility [S.56]

Section 56 of The Indian Contracts Act, 1872 begins by laying down a
straightforward principle that “an agreement to do an act impossible in itself
is void”. For instance, an agreement to discover treasure by magic, because
of its impossibility of performance, is void. An agreement to do an act that is
impossible from the very beginning whether the parties were aware of such
impossibility or not the agreement will be void.
Subsequent impossibility [S.56]

What if the parties enter into a contract and at that time of entering it was
possible to perform the contract but due to some supervening reason or
factors beyond the control of either of the parties the performance of the
contract becomes impossible or unlawful. Agreements of such a nature are
frustrated and hence void. For example, A agrees to sell a tract of land to B
but owing to some Governmental policy this tract of land has been taken by
the government for some official purpose. The agreement stands frustrated
and B cannot sue A for non-performance of his obligation as the performance
of A’s duty has become impossible.
Doctrine of Frustration
In the well known case of Taylor v. Caldwell, the defendants agreed to allow
the plaintiffs to use their music hall to conduct a concert for a few days. But
before the performance of the concert the hall was destroyed by fire without
the fault of either party. The plaintiffs sued for their loss. The court quashed
their argument stating that the performance of the contract has become
physically impossible because of the destruction of the subject-matter that is
the music hall in this case.
This principle is not restricted to just physical impossibilities; it also applies

to cases where the very reason/object why the parties entered into the
contract fails to materialise. The well-established authority is Krell v. Henry.
In this case, the defendants were keen on watching the coronation
procession. So they hired a flat from the plaintiffs from June 26 to June 27.
But owing to the King’s illness the procession was cancelled and the
defendants refused to pay money for the flat.
The court held that the doctrine of frustration applies as the very object of
the contract, as recognised by both the contracting parties, was to have a
view of the coronation process. The happening of the coronation hence forms
the heart of the contract. The very object of the contract was frustrated by
the non-happening of the coronation and the plaintiff was held not entitled to
receive money as rent fees.
Hence, the doctrine of frustration applies in two scenarios, first where

performance is physically impossible and second where the very
object/reason why the parties entered into the contract has failed to
materialise.
Commercial hardship
Sometime there may be alterations to situations where performance is not
practically cut off but only rendered more difficult or costly. Such cases do
not fall under the scope of Section 56 and this is amply shown in the case
of Sachindra Nath v. Gopal Chandra. In the case, the plaintiffs rented out
certain premises to the defendants for a restaurant at a rate higher than
usual. The defendants agreed to pay a higher price expecting huge profits as
the British soldiers were stationed in the town.
But due to the passing of a government order, the British soldiers were
prohibited from entering the area. Because of this, no profit was materialised
as expected. The defendants pleaded frustration and did not want to pay the
rent. The court quashed their plea and said that the alteration of
circumstances must be such as to upset altogether the purpose of the
contract and mere unprofitability cannot render the contract to be frustrated.
In the Indian Supreme Court case of Ganga Saran v. Ram Charan Ram
Gopal where there was a contract of sale of certain quantities of cotton
manufactured by Victoria Mills, Kanpur. This meant that the respondents
agreed to procure cotton from the mill and sell it to the appellants. But owing
to some issues Victoria Mill was unable to supply cotton to the respondents
and the respondents plead frustration due to impossibility of performance.
But the court held the respondents to be liable stating that the performance
did not become impossible as the respondents could have procured similar
quantities from another mill and delivered to the appellants. The mill does
not form the reason/object why the contract was entered into. The object
was to deliver certain quantities of cotton irrespective of the existence or
non-functionality of the mill.
In a similar case of Harnandrai Fulchand v. Pragdas the privy council

famously held that “ the closing or even the destruction of the mills would
not affect a contract”. If there are more than one ways of performing a
contract and due to closing or destruction of a mill one way is cut off, the
party is still bound to perform by the other way of procuring goods from
some other mill.
Specific grounds for frustration

The doctrine of frustration is applicable to a great variety of contracts. It is
impossible to lay down a straightforward list in which this doctrine applies
and in which this doctrine does not apply. The law in this matter is always
growing and evolving. Yet there are few well-established situations
recognised by the courts where the doctrine of frustration applies and they
have been discussed below.
1. Death or incapacity of party

A party to a contract can be excused from performance if performance
depends on the existence of that person or if the party becomes so ill that
they will be unable to perform their obligations. Therefore, where a contract
requires personal performance by the promisor, his death or incapacity will
put an end to the contract.
This has been well-established in the case of Robinson v. Davison where

there was a contract between the plaintiff and the defendant’s wife who
agreed to perform piano at a concert of the plaintiff on a stipulated date. But
due to sudden illness she was unable to perform at the concert and this was
informed to the plaintiffs on the morning of the date of performance. This
caused the concert to be postponed and caused losses to the plaintiff.
The plaintiffs filed for breach of contract. The court quashed their claim and
said that the contract was frustrated as she became ill without there being
any mistake or negligence on her part. The nature of the contract was such
that the terms required personal performance and incapacity by the means
of illness put the contract to an end.
2. Government, legislative and administrative

interventions
A contract after formation can be held frustrated if, at the time of entering,
performance was possible or lawful but after entering due to some Legislative
or Administrative intervention the contract has become impossible or
unlawful. In various cases, the court has reiterated over and over that when
a owner of a land ceases to be the owner anymore due to some policy of the
government. The contract of sale of a piece of land now owned by the
government is frustrated due to the impossibility of performance.
Similarly, In the case of Man Singh v. Khazan Singh, where certain parties
agreed to the sale of trees of a certain forest and the Government of
Rajasthan passed an order which forbade the cutting of the trees in that
area. The contract was held frustrated as it became unlawful subsequent to
entering into a contract owing to governmental order.
3. Non-occurrence of contemplated event

Sometimes the performance of a contract is entirely possible but due to the
non-occurrence of the event which forms the heart of the contract the
contract becomes frustrated. In Krell v Henry, a room was hired specifically
to view the king’s coronation procession but the contract was held frustrated
as the coronation was postponed. To get such a result one has to show that
the non-occurrence of the event was of such a nature that it forms the heart
of the contract and non-occurrence uproots the very foundation of the
contract.
4. Change of circumstance
Law has to adapt itself to economic changes. Marginal price escalations can
be ignored. But when the prices rise out of proportion from what could have
reasonably expected by the parties and making performance so crushing to
the contractor as to border virtually on impossibility, the law would have to
offer relief to the contractor in terms of price revision. This was recognised in
the case of Easun Engineering Co Ltd v. Fertilizers and Chemicals Travancore
Ltd. In this case, there was a price hike of 400% of a certain type of oil due
to the outbreak of war in the Middle East. The appellants plead that this is a
mere case of commercial hardship and hence damages should be awarded
for breach of performance.
The court quashed this argument and said that the price escalated out of all
proportions making things impossible for the respondents to supply the oil.
Commercial Hardship is about not allowing a party to avoid the contract for
lack of profitability. But an escalation of 400% in the prices makes the
performance of the contract impossible and hence the court held the contract
frustrated. In this case had there been mere marginal rise in the prices
frustration could not have been availed.
5. Destruction of subject-matter
This is the most straightforward heads under frustration. The doctrine of
frustration applies with full force when the actual subject-matter of the
contract has ceased to exist. Subject-matter of the contract is a thing
without which a contract cannot be performed. The authority, in this case,
is Taylor v Caldwell in which a contract to lease out a music hall for a certain
date was held frustrated due to the destruction of the hall. The performance
of the contract became physically impossible due to destruction of the
subject-matter hence the contract was held frustrated.
Effects of frustration
1. Frustration should not be self-induced

One of the main conditions required to claim frustration is that it should not
be self-induced. This principle was best explained in the case of Maritime
National Fish Ltd v. Ocean Trawlers Ltd. In this case, the appellants hired a
trawler (fishing vessel) named “St.Cuthbert” from the respondents. The
trawler was hired for use in Canadian waters only. Both the parties were
aware that this would require the Canadian Governments license. The
appellants had 5 trawlers in their possession but the Canadian Government
gave license to only 3 of their trawlers. The Government asked the
appellants to name the 3 trawlers for which they wanted to use the license.
The appellants named 3 trawlers but did not include St.Cuthbert. They then
repudiated the contract and pleaded frustration.
The courts did not grant the plea of frustration and held this to be a breach
of contract as the impossibility of performance was induced by the acts of the
appellants himself and not by a supervening act. Frustration operates
automatically in which the parties get placed in the circumstance by some act
beyond the control of the parties. Thus the court held that frustration, in this
case, was the result of the appellant’s own choice of excluding the
respondent’s ship from the license and, therefore, they were not discharged
from the contract.
2. Restitution under frustration (S.65)
Section 65: Obligation of person who has received advantage under
void agreement, or contract that becomes void.—When an agreement is
discovered to be void, or when a contract becomes void, any person who has
received any advantage under such agreement or contract is bound to
restore it, or to make compensation for it to the person from whom he
received it.
• Discovered to be void
The first part of this section is concerned with agreements that are void ab
initio and the agreement is discovered to be void some time later. If parties
enter into an apparently valid contract and pass benefits under the contract.
But later on they discover that the agreement was void ab initio then the
benefits passed under the agreement they believed to be valid have to be
returned or restituted to the other party.
In Devinder Singh v. Shiv Kaur where a minor gave a shop to the defendant
under a partnership but it was later discovered that the agreement was void.
The court held that the minor could recover the shop back.
Another illustration could be, If money is paid for sale of certain goods, which
are unknown to the parties, have already perished at the time. Afterwards,
the parties discovered this, the agreement became void due to impossibility
of performance and any money transferred under the void agreement is
refundable. To avail restitution under this section the parties must not be
aware of the void nature of their contract. The intention of Section 65
is to prevent a party to a void agreement to retain benefits under it. For this
section to apply to the parties and restitution to happen the parties should
not be aware of its void nature, it has to, later on, be discovered to be void.
If the parties are aware of the void nature of the contract and still enter into
the contract then restitution under this section will not be allowed. For
example, A promises to sell Ganja to B a narcotic substance prohibited from
sale and both A and B are aware of this. Despite knowing the contract to be
void B pays a certain amount for the commodity. If A defaults B cannot sue
him as he was already aware of the void nature of the contract.
• Becomes void
The second part of Section 65 deals with a contract which was initially valid
but subsequently becomes unlawful or impossible to perform. Any benefit
that has been delivered under the valid contract has to be returned once this
valid contract becomes void. In the case of Fibrosa Spolka Akeyjna v.
Fairbairn Lawson Combe Barbour Ltd where 1000 pounds were paid in
advance under a contract for the purchase of machinery but due to the
outbreak of war the contract became illegal.
Their Lordships held that any money advanced under a valid contract ought
to be returned to the other party if the contract became unlawful
subsequently. The utmost important condition of this section is that the
benefits should have been passed under the valid contract only not after it
became void.
This was further explained clearly in the case of Jagadish Prosad Pannala v.
Produce Exchange Corpn Ltd, there was a contract for sale of maize starch at
the price of Rs77 the ceiling price set by the government is Rs 78. The goods
were delivered on January 3rd and paid for. But on December 16 a new
government order made the ceiling price Rs 48 and this was to apply to all
contracts in which delivery was after January 1st. The buyer sued for the
difference in price. Though on the face of it, it seems like restitution is the
right solution, the court did not allow restitution.
The court agreed with the plaintiff to the extent that the valid contract
became void due to the government order which made the contract unlawful.
But the court also held that the benefits were not received under the contract
as the benefits were given only after the contract became void. The contract
became void on January 1st as per government order but the goods were
delivered on January 3rd that is after the contract became void. An essential
ingredient of Section 65 is that the benefits must be received under the valid
contract only then restitution is allowed.
Conclusion
The doctrine of frustration as provided under Section 56 of The Indian
Contracts Act, 1872 is an exception to the general rule of contracts where
compensation is provided in case of a loss. Hence it can be understood that a
contract gets frustrated when without the fault of either of the parties the
performance of the contract becomes impossible.
Investopedia / Ellen Lindner
What Is a Breach of Contract?

A breach of contract is a violation of any of the agreed-upon terms and
conditions of a binding contract. The breach could be anything from a late
payment to a more serious violation, such as the failure to deliver a
promised asset.
A contract is binding and will hold weight if taken to court. If it can be
proved that a contract was breached, the remedy would generally be to
give the victim what they were initially promised. A breach of contract is
not considered a crime or even a tort, and punitive damages are rarely
awarded for failing to perform promised obligations.
KEY TAKEAWAYS
• A breach of contract occurs when one party in a binding agreement

fails to deliver according to the terms of the agreement.
• A breach of contract can happen in both a written contract and an
oral contract.
• The parties involved in a breach of contract may resolve the issue
among themselves or in a court of law.
• There are different types of contract breaches, including a minor or
material breach and an actual or anticipatory breach.
• A breach of contract is not considered a crime or even tort and rarely
results in extra monetary compensation.
Understanding a Breach of Contract

A breach of contract is when one party breaks the terms of an agreement
between two or more parties. This includes when an obligation that is
stated in the contract is not completed on time—for example, you are late
with a rent payment—or when it is not fulfilled at all, such as a tenant
vacating their apartment owing six months’ back rent.
Sometimes the process for dealing with a breach of contract is written in

the original contract. For example, a contract may state that, in the event
of late payment, the offender must pay a $25 fee along with the missed
payment. If the consequences for a specific violation are not included in
the contract, then the parties involved may settle the situation among
themselves, which could lead to a new contract, adjudication, or another
type of resolution.
Types of Contract Breaches

One may think of a contract breach as either minor or material.
• Minor breach: A minor breach happens when you don’t receive an

item or service by the due date. For example, you bring a suit to your
tailor to be custom fit. The tailor promises (an oral contract) that they
will deliver the adjusted garment in time for your important
presentation but, in fact, they deliver it a day later.
• Material breach: A material breach is when you receive something
different from what was stated in the agreement. Say, for example,
that your firm contracts with a vendor to deliver 200 copies of a
bound manual for an auto industry conference. But when the boxes
arrive at the conference site, they contain gardening brochures
instead.
Further, a breach of contract generally falls under one of two categories:
• Actual breach: When one party refuses to fully perform the terms of
the contract.
• Anticipatory breach: When a party states in advance that they will
not be delivering on the terms of the contract.
Legal Issues Concerning a Breach of Contract

A plaintiff, the person who brings a lawsuit to court claiming that there has
been a breach of contract, must first establish that a contract existed
between the parties. The plaintiff also must demonstrate how the
defendant—the one against whom a claim or charge is brought in a
court—failed to meet the requirements of the contract.
Is the Contract Valid?
The simplest way to prove that a contract exists is to have a written

document that is signed by both parties. It’s also possible to enforce
an oral contract, though certain types of agreements still would require a
written contract to carry any legal weight. These kinds of contracts include
the sale of goods for more than $500, the sale or transfer of land, and
contracts that remain in effect for more than one year after the date when
the parties sign the agreement.
Courts will review the responsibilities of each party of the contract to

determine whether they have fulfilled their obligations. Courts also will
examine the contract to see if it contains any modifications that could have
triggered the alleged breach. Typically, the plaintiff must notify a defendant
that they are in breach of contract before advancing to legal proceedings.
Possible Reasons for the Breach
The court will assess whether or not there was a legal reason for the
breach. For example, the defendant might claim that the contract
was fraudulent because the plaintiff either misrepresented or concealed
material facts.
The defendant could alternatively argue that the contract was signed under
duress, adding that the plaintiff compelled them to sign the agreement by
applying threats or using physical force. In other cases, there might have
been errors made by both the plaintiff and the defendant that contributed
to the breach.
How to Avoid a Breach of Contract

To avoid a breach of contract lawsuit, you should check any contract you
sign for three things.
1. Clarity: The language of the contract should be clear and precise. If

the other party is not a native speaker of the language the contract is
in, it may be worthwhile to hire an interpreter to ensure that everyone
understands their roles and expectations under the contract.
2. Expectations: You and any other parties signing the contract should
understand the expectations it outlines and already know that you
are able to fulfill them. Your ability to meet those expectations should
not rely on future amendments because those may not happen.
3. Legality: In order to be binding, your contract needs to be legal
where it is signed. If you are not sure, work with a lawyer who
specializes in contract law before anyone commits to signing.
You can also avoid breach of contract lawsuits by carefully selecting the
people or companies that you work with. Take time to research their
professional reputations and legal history. If they have previously been
involved in breach of contract lawsuits, you may not wish to do business
with them.
Damages and Legal Remedies

Generally speaking, the goal of contract law is to ensure that anyone who
is wronged is basically left in the same economic position that they would
have been in had no breach occurred. A breach of contract is not
considered a crime or even a tort, and punitive damages are rarely
awarded for failing to perform promised obligations, with payouts limited to
the figures listed in the contract.12
For example, if you completed a job for which a contract stated you would
get paid $50,000, but you only got $20,000, you could be awarded
damages of $30,000.
Normally, a party whose contract was breached cannot claim more than
the money they were initially owed—as laid out in the contract.
However, the doctrine of reliance damages does offer some exceptions in
very specific circumstances. Additional monetary damages may be
awarded if it can be proved that a reliance on the contract being fulfilled
triggered other connected expenses, such as lifeguard equipment being
bought based on the assumption laid out in the contract that a pool would
be built.2
In such cases, those harmed will be rewarded extra damages only if they
did their best to get themselves out of that unfavorable situation—such as,
in the example above, by selling the lifeguard equipment.2
Economics of a Breach of Contract

Economically, the costs and benefits of upholding a contract or breaching
it determine whether either or both parties have an economic incentive to
breach the contract. If the net expected cost to a party of breaching a
contract is less than the expected cost of fulfilling it, then that party has an
economic incentive to breach the contract. Conversely, if the cost of
fulfilling the contract is less than the cost of breaking it, it makes sense to
respect it.
Furthermore, when the expected cost to each party of following through

with a contract is greater than the expected benefit, both parties have an
incentive to forgo the transaction in the first place or mutually agree to void
the contract. This may occur when relevant market or other conditions
change over the course of the contract.
Example of a Mutually Beneficial Breach of Contract

A farmer agrees in the spring to sell grapes to a winery in the fall, but over
the summer, the price of grape jelly rises and the price of wine falls. The
winery can no longer afford to take the grapes at the agreed price, and the
grape farmer could receive a higher price by selling to a jelly factory. In this
case, it may be in the interest of both the farmer and the winery to breach
the contract.
If the parties were to uphold the contract, the farmer would miss out on an
opportunity to sell at higher prices and the winemaker would suffer by
paying more than it can afford to, given what it would receive for the
resulting wine at the new market price. Consumers would also be
punished; the change in relative prices for grape jelly and wine signal that
consumers want more jelly and less wine.
Economists recognize that upholding this contract (making more wine and
less jelly, contrary to consumer demand) would be economically inefficient
for society as a whole. Breaching this contract, therefore, would be in the
interests of everyone: the farmer, the winemaker, the jelly maker, and the
consumers.
Societal Effects of Breach of Contract

It could also be the case that a breach of contract is in the interest of
society as a whole, even if it may not be favorable to all of the parties in
the contract. If the total net cost of breaching a contract to all parties is
less than the net cost to all parties of upholding the contract, then it can be
economically efficient to breach the contract, even if that results in one (or
more) parties to the contract being harmed and left worse off economically.
This is an example of what economists call Kaldor-Hicks Efficiency: If the

gains to the winner from breaching the contract outweigh the losses to the
loser, then society as a whole can be made better off by breaching the
contract.3
What Is Considered a Breach of Contract?

A breach of contract occurs when one party fails to fulfill its obligations as
outlined in the contract. That could include something relatively minor,
such as being a couple of days late on a payment, or something more
serious.
Can I Sue for Breach of Contract?

If you have a contract with another person or entity and they fail to fulfill
the contract as agreed, you can file a lawsuit to recover any damages that
you lost as a result. Before filing a lawsuit, though, you will want to speak
with a lawyer who specializes in contracts to ensure that your case has a
possibility of success.
Is Breaching a Contract a Crime?

Breaching a contract is generally not considered a criminal offense unless
it involves something like fraud. It is considered a matter between private
parties, rather than something that affects society as a whole.
What Are the Consequences of Breaching a Contract?

That depends. Generally speaking, if it can be proved that there was a
contract and that it was breached, then the party wronged should be left in
the same economic position that they would have been in had no breach
occurred.
What Is the Most Often Awarded for Breach of

Contract?
If you successfully take someone to court for breach of contract, the most
common remedy is compensatory damages. Usually, a court will order the
person who breached the contract to pay you enough money that you can
go elsewhere to get the services they failed to provide.
The Bottom Line

Contracts are specifically designed to be upheld and to give all parties to
the agreement peace of mind. However, there are cases when they are
breached, and a solution must be found to remedy a failure to perform
promised obligations.
While not strictly a crime, a contract is there to be honored—unless all

parties agree to renege on it—and it is not particularly easy to wriggle out
of one. The punishment for breaching may be already outlined in the
contract itself. Alternatively, a resolution might need to be found, which can
result in the breacher being forced to abide by its original commitment.
===============================================
Remedies for Breach of

Contract
What is a contract?
Section 2(h) of the Indian Contract Act, 1872 simply defines a contract as:
An agreement which is enforceable by law.
In other words, a contract is an agreement, the object of which is to create an

obligation. So, when an agreement enables a person to compel another to do
something or abstain from doing something, it is called a contract.
What is a breach of contract?
A contract can be said to be breached or broken when either of the parties fails
or refuses to perform his obligations, or his promise under the contract.
Therefore, it can be said that when a binding agreement is not honoured by
one or more parties by non-performance of his promise, the agreement can
be said to be breached.
Introduction
Parties to a contract are legally expected to perform their respective
obligations, so naturally, the law frowns upon a breach by either party.
Therefore, as soon as one party commits a breach of the contract, the law
grants to the other party three remedies. He may seek to obtain:
1. Damages for the loss sustained, or

2. A decree for specific performance, or
3. An injunction.
The laws relating to damages are governed by the Contract Act, whereas the
laws relating to injunctions and specific performance are governed by
the Specific Relief Act, 1963.
Damages for the loss sustained

Section 73 of the Indian Contract Act 1872 lays down four important rules
governing the measure of damages.
First Rule: Section 73(1)

When a contract has been broken, the party who suffers by such breach is
entitled to receive from the party who has broken the contract, compensation
for any loss or damage caused to him:
• Which naturally arose in the usual course of things from such breach,
or
• Which the parties knew, when they made the contract, to be likely to
result from the breach of the contract.
An uncommonly known fact is that Section 73 is based on a case law,
i.e. Hadley v. Baxendale (1854) 9 Ex. 354
The well-known rule in this case was stated by the Court as follows:
“Where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be either such as may reasonably and fairly be considered as
arising naturally, i.e. according to usual course of things, from such breach of
contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties at the time they made the contract as the
probable result of the breach of it.”
Second Rule: Section 73(3)

The second rule of measuring damages deals with remoteness of damage. It
states,
“Such compensation is not to be given for any remote and indirect loss or
damage sustained by the reason of the breach.”
Damages are measured by the loss actually suffered by the party. The loss
must naturally arise in the usual course of things from the breach; or it must
be such as the parties knew, when they made the contract, to be likely to
result from the breach of it. Therefore, it follows that a party is not liable for a
loss too remote, i.e. which is not the natural or probable consequence of the
breach of the contract.
In Madras Railway Company v. Govinda (1898) 21 Mad. 172, the

Plaintiff, who was a tailor, delivered a sewing machine and some clothes to the
defendant railway company, to be sent to a place where he expected to carry
on his business in an upcoming festival. Due to mistakes made by the
company’s employees, the goods were delayed and were not delivered until
some days after the festival was over. The plaintiff had not given any notice
to the railway company that the goods were required to be delivered within a
fixed time for any special purpose. On a suit by the plaintiff to recover a sum
of his estimated profits, the Court held that the damages claimed were too
remote.
Third rule: Explanation to Section 73

The third rule is to be found in the Explanation to Section 73, which provides
as follows:
“In estimating the loss or damage arising from a breach or contract, the means
which existed of remedying the inconvenience caused by the non-performance
of the contract must be taken into account.”
Therefore, if a railway company, having contracted with a passenger to take

him to a particular station fails to do so, the passenger is entitled to damages
for the inconvenience of having to walk and any reasonable expense which he
incurs, like staying at a motel, and he may get some other conveyance, and
charge the railways with that expense if it is a reasonable thing to do so in that
particular circumstance. What is not reasonable is for him to charter a special
train to save himself for waiting and charge the railway company with the
expenses.
Fourth Rule: Section 73

It is to be noted finally, that damages payable for the breach of a quasi-
contract are exactly the same as those payable for any other contract. To
rephrase, all the above rules apply to quasi-contracts in the same manner.
It should be noted that when no loss arises from the breach of contract, only
nominal damages are awarded. Damages are given by way of restitution and
compensation only, and not by way of punishment. The aggrieved party can
therefore recover the actual loss caused to him as compensation.
A decree for Specific Performance

According to Section 10 of the Specific Relief Act, 1963, there are seven cases
when specific performance of a contract may be allowed by the Court. They
are:
When there is no standard for ascertaining actual damage

When it is impossible to quantify the actual damage caused by the non-
performance of the act agreed to be done, the Court may, in its discretion,
grant a decree of Specific Performance of that act.
Duke of Somerset v. Cookson, 1935, 3 P Wins. 390

Art, paintings, old furniture, antiques, etc. have a special value to the
contracting party, although such articles may not have much monetary value.
For example, an idol which has been passed down from generation to
generation of a family has immense value to that family, even if it means
nothing to someone else. No amount of damages can compensate for the loss
to the members of the family, even if the Court makes an attempt to assess
the damages payable instead of the idol. Therefore, an order will be passed
for specific delivery of that idol, not for damages.
In Vijaya Minerals v. Bikash AIR 1996 Cal. 67, the Hon’ble Calcutta High
Court has observed that since manganese and iron ore are not ordinary items
of commerce, if a contract for sale of iron and manganese ore from a mine has
been made, specific performance of such an act would be allowed.
When monetary compensation would not afford adequate relief
When the act agreed to be done is such that compensation offered in money
for its non-performance would not afford adequate relief. However, until the
contrary is proved, it is to be presumed that:
• The breach of a contract to transfer immovable property cannot be

adequately compensated by payment of money.
• The breach of a contract to transfer movable property can be so
compensated, except in the following cases:
1. Where the property is not an ordinary article of
commerce or is of special value or interest to the
plaintiff, or consists of goods which are not easily obtainable
in the market;
2. Where the property is held by the defendant as the agent or
trustee of the plaintiff.
Usually, the Courts are entitled to presume that in case of breach of contract
to transfer of immovable property, mere compensation is not adequate relief,
whereas specific performance is adequate relief, whereas in the case
of movable property, compensation is the ordinary relief and specific
performance is exceptional. However, it must be noted that these
presumptions are rebuttable.
In Bank of India v. Chinoy, AIR 1949 PC 90, it was held that if shares are
freely available in the market, then specific performance would not be granted.
If shares of a particular company, for instance a private company
are not readily available in the market, specific performance would be granted.
Suits for enforcement of a contract to execute a mortgage

In a suit for the enforcement of a contract to execute a mortgage or furnish
any other security for the repayment of any loan which the borrower
is not willing to pay at once, specific performance may be allowed. However,
where only part of the loan has been advanced by the lender, he must be
willing to advance the full amount of the loan.
1. Contracts for the purchase of any debentures of a company.

2. Suits for the execution of a formal deed of partnership.
3. Suits for the purchase of partner’s share.
4. Suits for the enforcement of a building construction contract or any
other work on land, provided the following 3 conditions are fulfilled:
o The building or other work has been described in the contract
in a reasonably precise manner, so as to enable to Court to
decide the exact nature of building or work;
o The plaintiff has substantial interest in the performance of
the contract, and the interest is such that financial
compensation for non-performance of the contract
would not be adequate relief; and
o After the contract, the defendant has obtained possession of
the whole or any part of the land in question.
It is important to remember that specific performance is an equitable remedy,
and is therefore left to the discretion of the Court, rather than to the right of
a person by law.
An injunction
Under Section 36 of Specific Relief Act 1963, an injunction is defined as an
order of a competent court, which:
1. Forbids the commission of a threatened wrong,

2. Forbids the continuation of a wrong already begun, or
3. Commands the restoration of status quo (the former course of
things).
Clauses i and ii deal with preventive relief, whereas clause iii deals with an
injunction called mandatory injunction, which aims at rectifying, rather than
preventing the defendant’s misconduct.
Under Sections 36 & 37 of the Specific Relief Act 1963, there are two types of
injunctions – temporary and perpetual, whereas Section 39 governs
mandatory injunctions.
Temporary or interim injunctions are governed by Order 39 of Civil

Procedure Code 1908 and are those injunctions that remain in force until a
specified period of time, e.g. 15 days, or till the date of the next hearing. Such
injunctions can be granted at any stage of the suit.
Permanent or perpetual injunctions, as under Sections 38 to 42 of

the Specific Relief Act, 1963 are contained in the decree passed by the Court
after fully hearing the merits of the case. Such an injunction permanently
prohibits the defendant from committing an act which would be contrary to the
plaintiff’s rights.
Q: When are perpetual injunctions granted?

A: Under Section 38 of the Specific Relief Act 1963, whenever the defendant
invades, or even threatens to invade the plaintiff’s right to enjoyment of
property or right to property itself, the Court may grant to the plaintiff a
perpetual or permanent injunction in the four cases as follows:
1. Where there is no standard for quantifying the actual damages
caused, or likely to be caused, to the plaintiff, by the invasion of his
rights;
2. Where invasion of the plaintiff’s rights is such that any compensation
in money would be inadequate relief;
3. Where the defendant is a trustee of the property for the plaintiff;
4. Where the injunction is necessary to prevent multiplicity of judicial
proceedings.
Mandatory injunctions are granted in cases where in order to prevent the
non-performance of an obligation, it is necessary to compel the performance
of certain acts which the Courts are capable of enforcing. Thus, the Court may
at its discretion grant an injunction to prevent such non-performance and also
to compel performance of the required acts. This injunction is applicable to the
breach of any obligation. It may be permanent or temporary, although
temporary-mandatory injunctions are rare.
Damages instead of, or in addition to injunction:
Section 40 of the Specific Relief Act 1963 states that a plaintiff may claim
damages either in addition to or in substitution for suing for perpetual or
mandatory injunction, and if the Court deems fit, it may even grant such
damages.
It is worth emphasizing that damages and injunction are not alternate

remedies. Both may be allowed at the discretion of the Court.
However, damages cannot be granted unless the plaintiff has claimed

damages in the plaint. In the event that the plaintiff has not claimed damages
in the plaintiff itself, he should be allowed to amend the plaintiff, at any stage
of the proceedings, on such terms as may be just in the circumstances of the
case.
To conclude, it is thus evident that there are several remedies available in

case of breach of a contract, none of which are very simple. One would have
to overcome an abundance of challenges and rebuttals to prove a case of
breach of contract.
Principle of Quantum Meruit

under Indian Contract Act
Introduction
When parties enter into a contract there is a possibility for the breach of the
contract and breach of a contract can happen due to many reasons. For any
breach of a contract to happen, it is necessary that the remedies should also
be made or should be given by any Court. Out of five remedies which are
available to the aggrieved party, one is a suit upon quantum meruit.
Applying this remedy in a suit requires a thorough understanding and essence

of quantum meruit. Also, one should be aware of the usage of quantum
meruit as to when and where can this be applied or when it can be used by
the aggrieved party.
Meaning of Quantum meruit

Quantum meruit is a Latin phrase and is related to the Indian Contract Act,
1872.
It means “what one has earned” or “as much as he has earned”. In simpler
terms, it refers to the actual value of the services rendered or performed.
Even if there is no specific contract this law implies a promise to pay a

reasonable amount for the labour and material furnished.
The Black Law Dictionary states that quantum meruit means “as much as one
deserves”.
Theory of quantum meruit

Quantum meruit involves cases where someone gets a benefit while the other
party gets nothing. In contracts, this refers to the benefit or enrichment which
one party receives as a result of the other party’s actions.
In other words, it means that the other party who has received the services is
unjustly benefited and must return it to the party who provided such benefit.
For example, ‘S’ is the daughter and ‘M’ is the father. They entered into an
agreement where ‘M’ asked ‘S’ to provide medical care for him while he was
sick. In return, ‘M’ agreed not to write a will and agreed to give his estate to
‘S’ after he dies with an intent to give her a fair portion for the services
rendered. However, ‘M’ soon died, leaving all of the estates for his brother and
nothing for ‘S’. Here ‘M’ was unjustly enriched as he received the services but
in return ‘S’ received nothing.
In this example, ‘S’ seeks to recover a portion of “M’s” estate by claiming the
remedy of quantum meruit. This principle is based upon the idea that recovery
should be granted to one party where they have not received the value for the
services they rendered or when another party was unfairly and unjustly
enriched.
Suit upon quantum meruit

Quantum meruit is a claim under quasi-contract. The remedy to a party in a
breach of contract is the suit upon quantum meruit. The suit upon quantum
meruit arises where a part of a contract is performed by one party and then
there is a breach of contract or it is discovered that the contract is void or
becomes void.
The aggrieved party may file a suit upon quantum meruit and may claim
payment in proportion to work done or goods supplied in the following cases:-
• Where work has been done by one party in the execution of a contract
but the other party refuses to perform his part. Or prevents the
person to perform the contract.
For example, Seema was the owner of a music publishing house and she
engaged in a contract with Veer to compose a music series which will be
published by the music publishing house. The first music album was released
but before the publication of the second music album the music publication
house was closed. Here Veer can claim quantum meruit for the part already
published. He is entitled to a claim because he was somehow prevented by the
other party to perform his part and the other party has violated the terms of
the contract by not paying him the amount he deserves.
• Section 65 of the Indian Contract Act, 1872 talks about the

circumstance that where work has been done in the execution of the
contract but later it is discovered that the contract is void or it
becomes void.
• Where a person enjoys the benefit of a non-gratuitous act (given or
received without payment but where the party was obliged to pay)
despite the fact that there is no express agreement between the
parties, then the person who has enjoyed the benefit has to
compensate the other party or restore the thing so delivered.
For example, ‘D’ a vendor leaves his goods at “J’s” shop by mistake and ‘J’
treats them as his own goods without paying anything. Here ‘J’ is bound to
pay ‘D’ for the goods he left.
• When the contract is implied or expressed to render services but there

is no agreement with regard to remuneration – In such a case, a
reasonable remuneration is payable and what is a reasonable
remuneration will be determined by the Court and this reasonable
remuneration is the quantum meruit. This concept is explained
under Section 70 of the Indian Contract Act,1872.
• Where the contract is divisible, and a party to the contract has done
its part, he may sue other parties who have not performed
for quantum meruit.
This rule even applies to a person who is claiming quantum meruit and himself
is guilty of the breach of the contract, but the following two conditions should
be fulfilled for that:-
• The contract must be divisible

• The other party must have enjoyed the benefit of the part which has
been performed, although he had the option of declining it.
For example, Chena agreed to construct a house for David for ₹10,00,000 but
in midway, she abandoned the contract after having done the work worth
₹4,00,000. Afterwards, David somehow got the work completed. Here, Chena
could not recover anything for the work she has done, as she was entitled to
the payment only on completion of the work which apparently she could not
do.
Where the contract is indivisible and performed in a bad way- the party at
default can claim a lump sum amount and can reduce the amount for the bad
work done if the following conditions are fulfilled:-
• The contract should be indivisible,

• The contract should be for a lump sum,
• The contract should be completely performed and,
• The contract was performed badly.
For example, Raju agreed to construct a house for Pinku for a lump sum of
₹5,00,000. Raju did complete the work but Pinku complained of fault in the
work done by him. It cost Pinku another ₹1,00,000 as a remedy to the defect.
In this example, Raju could only recover ₹4,00,000 from Pinku by reducing
the amount of bad work done.
Quantum Meruit vs. Unjust Enrichment

It is very common for people to get confused between the two concepts. Both
the concepts discuss the aim of preventing one party to perform the contract
and the person preventing the other takes advantage of the services received
without even paying for their values.
The difference between the two concepts is that the unjust enrichment deals
with issues where there is a failure to pay for the services and quantum
meruit deals with such issues where the fair or reasonable amount should be
paid.
To be successful in a suit upon quantum meruit, the service provider i.e.
plaintiff must prove that the receiver of the services i.e. defendant agreed to
the provided services, knowing that he has to pay the plaintiff for the services
provided and that the defendant was unjustly enriched, which means he
received something for nothing. In simpler terms, it means that he received
for the services but did not pay in return, which was not the agreement.
The amount given in a suit upon quantum meruit, especially where there is no
written contract specifying an amount, is generally based on the fair market
value for the services rendered.
Case laws
Planche vs Colburn [1831] EWHC KB J56

In this case, the plaintiff entered into an agreement to write a book for the
defendant.
On completion of the work, 100 pounds was agreed to be paid. The plaintiff
started writing the book and completed a large portion of it. Afterwards, the
defendant decided not to proceed with the work and refused to pay money to
the plaintiff, even though the plaintiff was ready and willing to perform the
work.
It was held that the plaintiff is entitled to claim the money as the defendant
has refused to perform his part of the contract.
Craven-Ellis v. Cannons Ltd [1936] 3 All ER 1066

In this case, Craven Ellis was appointed as the managing director of a company
under an agreement in which his remuneration was fixed. But it was found
that the contract is void because neither Crave Ellis nor the directors seem to
execute the contract as they did not obtain the qualification shares (a share of
common stock that a candidate for a company’s Board of Directions (BOD) is
required to own) within two months after the appointment which was required
as per the Articles of Association.
The plaintiff continued to render the services even though the contract was
void. His suit upon quantum meruit is a valid one as the contract being void
does not disentitle him to claim for his services rendered. Since the company
had accepted the benefits of services rendered by Craven Ellis knowing that
the services were not intended to be gratuitous, it was held that Craven Ellis,
for his services rendered, is entitled to receive reasonable remuneration.
Sumpter v. Hedges [1898] 1 QB 673
Facts of the case

The plaintiff was a builder. He entered into a contract to build two houses and
stables on the defendant’s land for approx £560. While the buildings were still
in an unfinished state he informed the defendant that he is having no money.
Hence, he refused to work and only approx £300 work was completed. The
plaintiff asked for the money of half of the work done from the defendant. The
defendant refused and the plaintiff filed a case.
Judgement
It was held that the defendant had no choice apart from accepting the building
like this and he couldn’t keep the building like this forever so he completed the
work. In this case, the contract stated that the money had to be paid in lump
sum after the completion of the work and so the plaintiff could not be granted
the payment after only doing part of the work. And also as there was no fresh
contract so the plaintiff cannot recover on the basis of quantum meruit.
The relevance of this case was that a person can only recover a part of his
work when the contract is not a lump sum and the owner freely accepts the
work.
Here it was not free, instead, he did not have any choice.
Hoenig v. Isaacs [1952] 2 All ER 176
Facts of the case

The plaintiff is an interior decorator who entered into a contract with the
defendant to perform the decorative and furnishing work. A lump sum of £750
was to be paid for the work.
On completion of the work, the outstanding balance was £350 for the
contractor’s work and labour. The defendant refused to pay the balance
amount on the grounds that there were certain defects regarding the wardrobe
and bookshelf and the cost for the defects was £56. The plaintiff brought a suit
for the refusal.
Judgement
The Court held that the plaintiff has completed most of the work which was
agreed between the two and was therefore entitled to the remuneration which
was agreed in between them by reducing the price of the defects.
Conclusion
After a proper analysis of the remedy of quantum meruit, it is clear that the
law requires it to be fair and reasonable. The theory supports equality of the
parties and helps to ensure that if a person provides a service or a good, then
he should receive the benefit of the contract and in corollary, if that person
receives nothing, then that person can avail the remedy by filing a suit
upon quantum meruit.
All you need to know about

assessing damages for breach
of contract
Introduction
With the rapid increase in corporate and commercial transactions in our
growing economy and other allied areas, contracts have assumed increased
importance. It is nonetheless inevitable that with contracts governing almost
all forms of transactions and other relations between parties, the disputes
arising out of them have also increased.
In situations wherein the Parties fail to honour the obligations set forth in the
contract governing their relation, it is essential to evaluate the resources and
remedies available in such situations. One such recourse provided under law
is that of Damages in lieu of breach of a contract.
Damages have to be determined keeping in mind a lot of factors, thus this

article will aim to systematically list down all the key factors to be kept in
mind while assessing damages and will critically examine the same through
the help of statutory provisions, case laws and illustrations.
Breach of contract and statutory

provisions
Taking the aspect of breach of contract under consideration, the very
foremost essential for breach of contract to happen is the existence of a valid
contract.
A contract is an agreement that binds parties and obligates them to perform

certain specified tasks as envisaged in the agreement between them. The
term contract is defined in the Indian Contract Act, 1872 under Section 2(h)
as “An agreement which is enforceable by law”.
From the definition it is clear when the agreement becomes enforceable by

law, it transforms into a contract, creating legal obligations for the parties.
There are certain essential defined under the Indian Contract, 1872 which
need to be met in order for a contract to qualify as a valid contract. Some of
these conditions are offer and acceptance, the intention of parties to create a
legal obligation, consideration, and consensus among other essentials.
Section 39 of the Indian Contract Act, 1872 gives out the concept of “breach
of contract”. Although this Section doesn’t use the term breach of contract,
yet the conditions set out form the basis of a breach of contract.
According to this Section, breach of contract happens when the party to a

contract refuses or has failed or omits or disables himself, to perform his part
of the promise as set out in the contract between the parties.
This may put an end to the contract unless the breaching party signifies on
words or conducts his acquiescence in continuing to perform his obligations.
It is basically a violation of the contract terms when one party fails to fulfil its
promises.
Example:
A enters into an agreement with B to deliver certain goods to B within a

period of 20 days, starting from the date of execution of the agreement. A
fails to deliver these goods to B. There is a breach of contract on part of A.
A breach can be of various types, from material breach of contract wherein

the breach is so grave in nature that it dishonours the entire purpose of the
contract; to an actual breach of contract wherein, the party fully refuses to
perform its part of the promise or an anticipatory breach of contract, wherein
from the conduct of one party, its intention of non-performance can be
clearly made out. Section 73 of the Indian Contract, 1872, further lays the
provision for governing breach of contract; this is discussed in the next part
of this article.
Remedies available in case of breach of
contract
“Ubi jus, ibi remedium”, meaning that where there is a right there is a
remedy. Thus, since a contract creates some rights in favour of the parties,
in case of a breach there is always a remedy available.
There can be numerous remedies available in case of a breach of contract,

depending upon the nature of the contract, the surrounding circumstances
and the intention and position of parties. Some of these remedies are an
award for damages, specific performance, restitution, and rescission,
injunctions.
The Indian Contract Act, 1872, along with the Specific Relief Act, 1963,
provides for various remedies in case of breach of contract:
Damages
This implies that compensation in monetary terms is provided by the
breaching party to the party who has suffered loss or injury on account of
the breach. Section 73 and Section 74 of the Indian Contract Act, 1872 lays
down the provisions relating to the same.
Restitution
Restitution is a remedy that is used to restore the status quo of the injured
party to the contract in a position before the contract or as if the contract
never happened. For example, the breaching party can be directed to return
the property of the injured party on account of the breach.
Rescission
Rescission happens when a contract is terminated on the order of the court.
This remedy comes into the picture when the consent to contract is obtained
via fraud or undue influence and the contract terms are detrimental to one
party in such a case and it would only be justified to rescind the contract.
Specific performance
When monetary damages are not adequate to compensate the injured party,
the court could direct specific performance of the contract under dispute. It
basically means that the court could direct the breaching party to specifically
perform his promise or some part of it. The provisions for the same are laid
down in the Specific Relief Act, 1963.
Injunction
Injunction basically implies a restraint from breaching the contract by the
other party. It is basically in the form of a court direction.
What are damages and their kinds

The term damages is not defined per se defined under the Indian Contract
Act, 1872. However, in a common general sense, damages mean an award in
terms of money to be paid by the breaching party to the injured party as
compensation for the loss that it suffered on account of the breaching party’s
default of the terms and conditions of the contract.
In the case of Common Cause v. Union of India, the Supreme Court of India,
emphasized on the definition of Damages as, “Damages are the pecuniary
compensation, obtainable by success in an action, for a wrong which is either
a tort or a breach of contract, the compensation being in the form of a lump
sum which is awarded unconditionally”.
There are three basic essential of damages that were pointed out by the
Supreme Court in the case of Organo Chemical Industries v. Union of India;
1. The detriment caused to one party by the wrongdoing or not doing

of another;
2. Reparation to be awarded to the injured party through the legal
remedies; and
3. Determination of quantum on the basis of pecuniary compensation
for the loss suffered and punitive addition as a deterrent.
Consequences of breach of contract

Section 73 to 75 of the India Contract Act, 1872, layout the provisions for
consequences of breach of contract and for an award of Damages.
Compensation for damage due to breach of

contract (Section 73)
When one party breaches the contract and another party suffers the
consequences of such a breach, then the injured party is entitled to
compensation. The compensation will not be given for any remote or indirect
damage.
Example: A contracts with B, to buy an exclusive car for 5 crores rupees from
B, on delivery of the car, B fails to make the payment, B is entitled to
compensation.
Compensation for breach of contract where

penalty stipulated (Section 74)
It might be possible that in some cases, the amount of compensation is
envisaged under a clause in the contract itself, in case of a breach of
contract. In such cases, the compensation should be paid which is not
exceeding the amount already stipulated in the contract.
Example: X contracts with Y to supply lentils to Y on an agreed amount, in

the contract it is stipulated that on the failure of any party to perform their
obligations, the injured party will be liable to compensation of 5 Lacs. Thus,
the compensation amount cannot exceed 5 Lacs.
Party rightfully rescinding contract entitled to

compensation (Section 75)
A person who rightfully rescinds a contract under the Indian Contract Act,
1872 is thereby entitled to compensation for any damage that he might have
suffered due to the rescission of the contract.
Kinds of damages
Unliquidated damages
Damages in the monetary form are awarded by the court after due
assessment of the situation of the breach. This is provided for under Section
73 of the Indian Contract Act, 1872.
Liquidated damages
Damages that are stated and stipulated specifically in the contract are called
liquidated damages; the amount is specified in the contract itself. This is
provided for under Section 74 of the Indian Contract Act, 1872.
Ordinary or general damages
Section 73 of the Indian Contract Act, 1872 identifies general damages to
mean the damages which naturally occurred in the usual course events or
things from the breach that has been caused, or which the parties were sure
would arise in the event of a breach.
Example: Anish decides to sell and transport 10 bags of potatoes to Ram for
Rs 5,000 subsequently after two months. On the date of transfer, the rate of
potatoes increased and Anish denies to complete his promise. Ram buys 10
bags of potatoes for Rs 5,500. He can receive Rs 500 from Anish as ordinary
damages arising directly from the breach.
Special damages or consequential damages

Special damages can arise on account of unusual or differing circumstances
affecting the injured party, which couldn’t have been foreseen and eventually
result into consequential damages.
These damages are usually not recoverable unless the special varying
circumstances are brought to the due knowledge of the breaching party, so
the possibility of loss can be evaded by them.
Consequential Damages are losses above the general losses incurred due to
the breach of contract and don’t directly flow from the act of the party but as
a consequence of a wrongful act. They focus on the cost outside the contract
as was held in the case of Reliance General Insurance v. Anish Sebastian.
Punitive damages
Punitive Damages refer to those damages which are a penalty to the
breaching party in the form of punishment to act as a deterrent. Courts
rarely award punitive damages in breach of contract cases. They are
generally awarded in cases of torts.
Nominal damages
Nominal damages are basic to bare minimum damages awarded to the
injured party who might not have suffered a heavy monetary loss due to the
breach.
Factors to be considered while assessing
damages
Causation
For a claim of damages to succeed and for the purpose of affixing liability on
the defaulting party, there needs to exist a causal connection between the
breach committed by the party and the loss or injury that has been suffered.
This causal connection is said to be established if it is the act of the

defendant that has ultimately amounted to the breach of the contract and it
is the only “real and effective” cause with respect to the injury or loss that
has been incurred for which damages are being claimed.
For establishing a causal link, the courts follow various tests with
consideration to the facts and circumstances of each case, out of which the
most prominent test is the “but for” test, wherein the court seeks to
determine whether the damage would have accrued but for the acts of the
defendant.(Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144)
If it is found out by the court that the breach of contract cannot be asserted
to the acts of the defendant, it may decide in favour of not awarding
damages in any form to the plaintiff.
Remoteness of damage
One of the vital requirements for an award for damages to succeed is to that
the loss or the damage should arise in the normal or usual course of things
from such a breach; or that the parties knew that such damage could arise,
at the time of entering into the contract. Thereby, absolving the defendant of
any liability that may have arisen as a remote consequence of a breach of
contract.
This aspect is related to special or consequential damages as enumerated in

the above Section. It was in the landmark case of Hadley v. Baxendale, that
the principle of the remoteness of damage was laid down.
Damages for direct, consequential and incidental losses and

damage
In the event of a breach of contract, besides the compensation that is
payable due to the loss or the damage caused, the defendant is also liable to
compensate for the damages that arise directly in consequence of such loss
or damage.
For example, In a contract of construction by a builder, if the construction is

so bad that it falls down and is to be rebuilt and subsequent to that it cannot
be let out, the builder would be held liable to compensate for the expenses
incurred in rebuilding along with the loss of potential rent. If the losses are
reasonably foreseeable, they can be compensated for, be it consequential or
indirect loss.
Damages for loss of profit

Usually, the defendant is accountable for the loss of profits that emerge
directly from the breach of the contractual obligations. For instance, loss of
normal profits due to delay in delivery of relevant material by the defendant
can be covered under this head. However, if loss of profits, which are not
direct consequences of the breach of contract, wouldn’t attract such
damages.
Date of valuation for period of loss

For claiming damages for loss for any kind of profit, the period of loss and
the date from which it is calculated become important factors for claiming
damages. For instance, it might be possible that a person has incurred a loss
of profit during his business, but he might not be functioning under an
obligation to the contract, thus the other party is not liable to make good
that loss during that period.
Future losses
Generally, future losses are problematic to determine than past losses and
courts don’t tend to award compensation in the context of future losses. The
more evidence there is of the ability to generate future cash flows and
profits, the higher the chance there is that the court may award damages in
such a situation. For there to be more evidence, it is important to keep
copies of all transactions that take place between the parties and to even
incorporate such a situation of future losses in the contract.
Damages for non-pecuniary losses

In normal circumstances, damages are usually as compensation for
pecuniary losses incurred due to the breach of contract. There may arise
situations wherein the plaintiff claims damages for non-pecuniary losses that
might have been incurred to him. Courts are usually not inclined to award
compensation for such losses however, damages for such nature can be
awarded wherein the essence of the contract itself is relating to a non-
pecuniary subject.(Ghazibad development Authority v. Union of India AIR
2000 SC 2003.)
For example, damages for mental anguish or suffering may be awarded in

cases where the contract itself is for providing enjoyment, pleasure, like a
contract of service to click pictures during a wedding ceremony( Disen v.
Sampson (1971) SLT (Sh Ct) 49. ).
Mitigation
For an award of damage, it is necessary that the party which is claiming
damages on account of the breach, itself was willing to perform its part of
the promise under the contract or has already performed it. Therefore, the
duty to mitigate losses is indispensable, prior to claiming damages. The party
claiming damages has a duty to take all reasonable steps necessary to avoid
such damages.
A party cannot just let the situation worsen without taking any affirmative
steps on its part to avoid such a breach. The duty of implementing
reasonable steps to alleviate the loss is supplemented by the duty to hold
back from resorting to unnecessary means that would further aggravate such
a loss(Burn & Co. Ltd. V. Thakur Sahib Lakhdirjee AIR 1924 Cal 42.). Thus, it
is necessary to evaluate whether the party claiming damages undertook such
steps or not.
For instance, a builder breaches a contract by failing to repair a leak in the

roof of an office building and then when the owner of the property discovers
the same, he let all his computer equipment sit there without shifting them,
where he could have easily done that.
Later if the owner claims damages for damage to the computer due to the
leaking roof, the court would dismiss his claim to that extent because he
didn’t take any steps to mitigate the situation.
Contributory Negligence
Contributory negligence refers to a situation wherein the party claiming
damages has itself contributed to the negligence that leads to the loss. The
basic principle is that no one can benefit from his own fault. If the court finds
that the plaintiff has contributed towards the breach, then the finding of
contributory negligence can lead to a reduction in the award of damages.
For example, in a contract to repair a computer, if after reparation, the user

uses it negligently and drops it and spills water on it, he has contributed
towards the damage thus his claim of award for damages will be affected.
Measures and calculation of damages

The aim of an award of damages in case of breach of a contract is to restore
the party against whom the breach has been committed in a position that
would have persisted if the contract never took place. Therefore, the
damages awarded cannot exceed the loss suffered by the party or are likely
to be suffered by the party. The Supreme Court in the case
of Murlidhar Chiranjilal vs. Harishchandra Dwarkadas had laid down two
important principles with respect to the calculation of damages subsequent
to breach of contract:
On proof of breach of contract, the claiming party is to be placed so far as

money can do it in as good a situation as if the performance of the contract
took place;
It is the duty of the plaintiff to take all reasonable steps to mitigate the loss
incurred due to the breach, and he cannot claim any damage resultant of his
failure to mitigate such a loss.
With respect to the time and place for assessment of damages, generally, the
value of goods is calculated on the basis of where and when the goods were
originally to be delivered under the contract or where and when such
services were to be performed.
Interest on damages
Interest, despite the fact that it is statutory or contractual, depicts the profits
the creditor might have made if he was in a position to use that money or
the loss he suffered because he couldn’t use it (as held in the case of Dr.
Shamlal Narula v. Commissioner of Income Tax, AIR 1964 SC 1878.).
Grant of interest in the case of a contractual breach greatly depends upon

the terms and conditions of the agreement, the customs that govern those
payments and the relevant provisions of the statutes.
Interests that are granted as damages would be calculated at the rate of
interest that the person to whom it ought to have been paid would have got
on it, if it had been paid per the terms of the contract. Section 34 of the Civil
Procedure Code provides that rates for such interests shall not exceed 6%.
Taxation
If a compensation amount received as damages, qualifies as income under
the Income Tax Act, 1961, then it may be liable to tax in certain situations.
In a case where the applicable tax rate on profits is equivalent to the rate of
tax on a damages award, then the damages claim may be calculated on a
pre-tax (or grossed-up) basis. Care should be taken, however, to ensure that
any claim for interest on the tax payable for the award is calculated in line
with the underlying cash flows. Thus, the tax laws can affect the value of the
award.
Conclusion
Many of the issues encountered by courts and experts in the assessment of
damages are based on the above-laid criteria and factors, thus it is important
to keep these points in not only while assessing damages but also while
entering into contracts. It is always preferable, to whatever extent possible it
is favourable to specify the number of damages in the contract itself, which
saves a lot of litigation costs and effort and other resources of both parties.
Thus, it is always suggested to do intense research before entering into
contracts and draft the contracts with utmost diligence.
All about quasi-contracts and

its types
What is a contract
A contract is an agreement made between two or more parties that is
enforceable by law. Section 2(h) of the Indian Contract Act, 1872 states that
“An agreement enforceable by law is a contract”. This definition is based on
the definition of contracts stated by Frederick Pollock who was an English
jurist. His definition states that “Every agreement and promise enforceable
by law is a contract”.
Sir William Anson who was a British Jurist and a unionist stated that a
contract is “a legally binding agreement between 2 or more persons by which
rights are acquired by one or more to acts or forbearance (abstaining from
doing something) on the part of others”
Salmond who was a Scottish politician stated, “A contract is an agreement

creating and defining obligation between two or more persons by which
rights are acquired by one or more to acts or forbearance on the part of
others”
Two of the most basic requirements or elements that are needed to create a
contract are:
• Agreement: An agreement is a promise or a set of promises which is

used to form consideration for all the parties involved as mentioned
in Section 2(e) of the Indian Contract Act, 1872.
• Enforceability by law: All types of agreements are required to be
legally sound to be passed as contracts in the eyes of the Courts.
To form an agreement, there must be a proposal or an offer by one of the
parties and its acceptance by the other and that is why it is necessary for an
agreement in a contract for it to be accepted as a proposal. In simpler terms
:
Agreement = Offer + Acceptance.
For example: In a hypothetical situation, Amrita who owns a cow makes an

offer to sell the cow to Manish in exchange for 20,000 rupees. Manish gives
his consent (acceptance) to buy the cow from Amrita and due to the fact that
there exists an offer and an acceptance, an agreement is formulated which in
return formulates a contract between the two parties.
Consensus ad idem
Consensus ad idem is an important element that constitutes an agreement
and therefore it is an important element for the formulation of the contract.
This is a Latin phrase that in literal terms states that all the parties involved
in making a contract are on the same page about all the details of the
contract and everyone has accepted the offered contractual obligations of
each party.
In other words, the parties involved in the agreement must agree on all the
subject matters of the agreement in the same sense and time. If there is no
consensus ad idem, there is no agreement and therefore there is no contract.
For example: In a hypothetical situation, Karan, is the owner of 2 horses one
of which is a racehorse and the other one is a show breed horse. Karan
intends on selling the show-breed horse. He made an offer to sell the show
breed to Lata but Lata thinks that she is purchasing the racehorse from him
due to a misunderstanding. There is no consensus ad idem and thus, no
contract.
Essential elements of a valid contract

To understand and remember the elements of a valid contract, try to imagine
a pizza. Try to visualize a pizza with all its toppings. In this context, just like
how the ingredients of a pizza are important to make it edible, the elements
that are listed below are required to make a contract legally sound and
acceptable in the courts of law. Without the elements listed below, the
agreement won’t be a contract. According to Section 10 of the Indian
Contract Act, 1872, all agreements are contracts if they are made by the free
consent of the parties involved who are competent to form a contract while
keeping in mind that there is a lawful consideration and lawful objects
involved in the contract. To become a contract, an agreement must have the
following essential elements:
• Offer and acceptance: There must be two or more parties to form an

agreement. The terms of the offer need to be definite and the
acceptance must be absolute.
• Intention to create a legally valid offer: When the involved parties
decide to enter into an agreement, their intention to create an
agreement should have legal validity. If the legal validity factor is
missing, then there will be no contract. Agreement of a social or
domestic nature does not constitute a legal relationship as there are
no such contracts.
• Lawful consideration: Section 2(d) of the Indian Contract Act,
1872 states that “When, at the desire of the promisor, the promisee
or any other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a
consideration for the promise”. In layman’s language, any
agreement enforceable by law must be supported by consideration
of both parties.
• Competency of a party: Parties who are incompetent to enter into a
valid and legally binding contract include minors, mentally unsound
minds, and anyone who is not qualified to enter into a contract by
law to which they are subject. A flaw incapacity to enter into a
contract may arise from idiocy, drunkenness, lunacy, etc too. If a
party experiences any such form of flaws, the agreement will not be
enforceable.
• Free consent: The term ‘free’ means ‘able to act or be done as one
wishes and not under the control of another. It means that all the
parties should have free consent to enter into an agreement. The
absence of free consent due to coercion, undue influence,
misrepresentation, etc results in forming a void contract.
• Lawful object: Section 23 of the Indian Contract Act, 1872 states
that the object of an agreement must be lawful. That means the
object must not be illegal in nature which includes drugs, murder,
etc, the contracts should not be immoral in nature which includes
agreement to break a third party’s marriage, signing contracts to
murder an individual, etc and lastly, it should not be opposed to
public policy. If any agreement encounters such flaws, then that
agreement would be considered unenforceable.
Types of contracts
As mentioned above, we are already familiar with terms such as valid
contracts and void contracts, listed below are a few other types of contracts
that are acceptable in the eyes of law:
Valid contracts
A valid contract is a legally binding and enforceable agreement. The main
factor that qualifies an agreement to be a valid contract is the existence of all
the above-mentioned elements.
Illustration: Aditya agrees to sell his car to Nayan for 5,00,000/-. Nayan
sends a cheque to Aditya and in return, Aditya sends over the car to Nayan.
This is an example of a valid contract.
Void contracts
A contract that ceases to be enforceable by law makes it void.
Illustration: Aditya agrees to pay 20,000/- to Nayan after 5 years for a loan
of 18,000/- which is made out to Aditya by Nayan. During the 3rd year of
this timeline, Aditya died in an accident and that is why this contract shall be
considered void due to its non-enforceable nature under law as per the
agreed terms of the contract.
Voidable contract
Voidable contracts are the type of contracts that are basically an agreement
that is enforceable for a party/parties and which is not enforceable by law for
the other party/parties.
Illustration: Aditya agrees to sell his laptop to Nayan, a 16-year-old teenager

for 8,000/-. What makes this a voidable contract is that even though Aditya
has made a valid deal, the fact that Nayan is a minor makes the entire
agreement a voidable contract. Nayan is not bound to pay and is allowed to
repudiate and/ or accept the terms of the contracts as if they choose to
repudiate the contract, it will become a void contract but since Nayan decides
not to, it becomes a voidable contract. Other than this, a voidable contract is
a valid contract.
Illegal contract
As the word states, an agreement that leads to breaking the law or
performing something that is deemed to be illegal in the eyes of law is known
as an illegal contract. A Contract that opposes public policies is also counted
as an illegal contract
Illustration: Aditya is a drug dealer and he agrees to sell weed to Nayan.

Even though this contract has all the essential elements required to
constitute a contract, the unlawful object still makes the entire contract
illegal.
All illegal contracts are void but not all void contracts are illegal as illegal
contracts are void ab initio which in literal terms means void from the
beginning, unlike the latter one. One more factor to support this statement is
the criminal aspect of illegal contracts is that these acts are punishable under
law. All the involved parties are prosecuted under the law.
Unenforceable contract
Unenforceable contracts are simply rendered unenforceable by law due to
some technicalities. This kind of contract cannot be enforced against any of
the parties involved.
Illustrations: Aditya agrees to sing at a concert on the 21st July 2021 but he
fractured his legs and broke his spinal cord in an accident, this contract is
unenforceable and cannot be used against Aditya.
Contingent contract
Contingent contracts are a simple example of when a promisor needs to
meet the contractual obligations only when a certain situation happens. For
example: insurance contracts.
Illustrations: Aditya, the owner of an insurance firm is obligated to give a
certain amount of money to Nayan, whose car was completely destroyed in
an accident.
Quasi-contracts
One more contract that has not been mentioned above is quasi-contracts.
Since the main agenda of this article is to understand what a quasi-contract
is and to analyze the types of quasi-contracts, let us start by understanding
what a quasi-contract means.
The word ‘quasi’ means pseudo or partly or almost and that is why it can also
be called a pseudo contract. A quasi-contract is an agreement that is
retroactive in nature. These kinds of agreements take place between parties
who have no prior contractual commitments or intention of getting into a
contract. The judge simply develops the concept of a quasi-contract to rectify
situations where one side acquires something at the detriment of the other
side. In layman’s language, this type of contract aims to prevent one party
from benefiting financially in a situation while financially draining the other
party. Such agreements may be enforced by the approval of the party which
is responsible for providing the goods or services but it is not necessary to
keep this factor in mind before enforcing a quasi-contract.
The only factor that constitutes a quasi-contract is that there lacks an

understanding between parties beforehand. Quasi-contracts exaggerate one
party’s duties to the other party where the second party is in control of the
first party’s personal property. As a remedy, it is the judge’s duty to impose
the agreement by the law. To support this statement, the author would like
to give an example: in a hypothetical situation, Party A found a wallet on the
road which belongs to Party B. By this example shows that Party A owes
something to Party B as they now possess Party B’s property indirectly or by
mistake. The contract becomes enforceable only if Party A decided to keep
Party B’s wallet without trying to return it to the original owner.
A second word for quasi-contracts is implied contracts. A literal meaning is

attached to the term implied contract as the defendants are ordered to pay
for the damages and the quantum meruit or restitution is measured as per
the intensity of the wrong done. Lastly, none of the parties involved are
supposed to give consent as the agreement is being established in the court,
therefore, making it legally enforceable without consent. The main aim of
such contracts is to make a fair decision that will, later on, turn into an
outcome that is acceptable to the party that has been wronged.
Elements of a quasi-contract
Listed below are the components required for a judge to issue a quasi-
contract:
• An individual or as the law recognizes, one claimant. There must

also be a defendant who will be responsible and asked to pay the
restitution.
• The defendant must be willing to recognize or even acknowledge the
value of the product/ service in question but has not made any
efforts to return it/ pay for it or even made an effort to do
something about it.
• The complainant needs to prove that the defendant earned wrongful
enrichment.
Principle on which quasi-contracts are based

The main principles on which these types of contracts work are justice,
equity, and good conscience. This principle is based on a legal maxim ‘Nemo
Debet Locupletari Ex Aliena Jactura’ which in literal terms means no man
must grow rich out of another persons’ loss.
To support this statement, here is an illustration of this principle: In a

situation, Pari and Isha enter into a contract where Pari agrees to pay 900
rupees for a bouquet of flowers when it would be delivered to her house by
Isha herself. However, Pari mistakenly delivers the bouquet to Anisha’s
house and she issues it as a birthday gift and she keeps it for herself. Even
though there is no contract between Anisha and Pari, the court shall treat
this situation as a quasi-contract and order Anisha to either pay for the
flower bouquet or return it in the same condition. Law sees no contract
between the parties, it is just that the law imposes contractual liabilities in
order to not oversee certain peculiar situations.
There are 5 different types of situations where a quasi-contract can be

formulated. All these situations are elaborately discussed under Section 68 to
Section 72 of the Indian Contract Act, 1872.
Types of quasi-contracts
Listed below are the 5 types of quasi-contracts that are recognized by law :
Section 68
“Necessaries supplied to a person incapable of contracting”
Necessities supplied to the person who is incapable of contracting is the first
example of the situation under which a quasi-contract can be formulated and
this situation is explained under Section 68 of the Indian Contract Act, 1872.
To understand this easily, any person who is incapable of entering into a

contract i.e. is a lunatic, minor, mentally incapable of understanding their
surroundings, etc. If someone even supplies necessary supplies to such a
person even is entitled to get a reimbursement from the property of the
person who is incapable in this situation. This rule is applicable whether or
not the person does help the incapable person because of an ulterior motive
or purely out of humanity.
Illustration: Every month, Pari supplies necessary items to Lata as per her
requirement as Lata is a lunatic and is not capable of helping herself out.
Even though Lata is broke and does not have money to pay Pari, Pari is
entitled to reimbursement from the property of Lata and this is termed as a
quasi-contract. To make sure that Pari is reimbursed, she needs to prove
that Lata is a lunatic and that the goods she supplied to Lata were necessary
items only and that they were given to Lata on time as per her requirements.
Section 69
“Payment by an interested person”
Payment by an interested person is the second situation under which a

quasi-contract can be formulated and this situation is explained
under Section 69 of the Indian Contract Act, 1872. To understand this type
of quasi-contract, the main thing to keep in mind is that if a person pays the
money on someone else’s behalf, the other person is bound to pay back the
money and reimburse the person by law.
Illustration: Pari is the owner of the land and has leased the land to Lata for
a period of three years. Within two months of leasing the land, it was
revealed that Pari couldn’t pay the tax revenue to the government and even
after sending in notices, she wasn’t able to pay her dues. Thus, the
government put out an ad to sell the land. As per the revenue laws, once the
land is sold, Lata’s lease shall be annulled. Lata is not interested in letting go
of the land therefore she decides to pay the amount due to the government
for Pari. in this situation, Pari is obligated to reimburse Lata.
Section 70
“Obligation of the person enjoying the benefits of a non-gratuitous act”
When a person enjoys the benefits of a non-gratuitous act, that person is
obligated to repay the person wronged. As per Section 70 of the Indian
Contract Act, 1872 it is stated that if a person is legally giving out goods/
products/ services with no intentions behind it of performing a non-
gratuitous act for anyone and the person in the wrong graciously uses the
goods/ products or services is liable to pay the compensation to the former
for the benefits they have been getting from the latter. They may be liable to
give back monetary compensation or maybe simply asked to restore the
goods used. To get reimbursed, the plaintiff must prove that the services/
goods they delivered were lawful, there was no intention to provide those
products/ services graciously, and that the latter did enjoy the benefits of the
products/ services.
Illustration: Pari is the owner of a fruit shop. She placed baskets of her fruits
on a rack outside her store to keep them fresh. Lata, who was around the
store, picked up an apple from the rack and bit into it. This is a situation
where Lata is liable to pay monetary compensation to Pari as Pari did not put
out her fruits as a gratuitous favor for people.
Section 71
“Responsibility of finder of goods”
As per Section 71 of the Indian Contract Act, 1872, if a person finds an item
that belongs to someone else and decides to take them into their custody,
the former person has to adhere to the responsibilities that include taking
good care of the goods, not appropriating the goods and returning it back to
the owner in the same condition they found it in.
Illustration: Pari is Lata’s neighbor. One day since Lata wasn’t home, she
already paid and delivered the package lying on her doorsteps which was
later on found by Pari. She knew that Lata was not going to be home for
another 3 days so she picked it up and took it with her. In this situation, Pari
is supposed to inform Lata why she picked her parcel and she is obligated as
well as liable to return the parcel to Lata in the same condition and if she
fails to do so, Pari is supposed to compensate late with either monetary
compensation or a replacement of the goods/products that were in the parcel
that belonged to Lata.
Section 72
“Money paid by mistake or under coercion”
As per Section 72 of the Indian Contract Act, 1872, if a person finds that
they received money from someone by mistake or because of the fact that
they were under coercion then the former is liable to repay or return the
money they received in the due course.
Illustrations: Pari received a payment of 5,000/- in her bank account via her
UPI ID through Gpay by Lata. In reality, Lata intended to pay that money to
Paresh, her brother. After Pari realized that she received the money by
mistake, she is liable for the money back to Lata. In similar terms, if money
is paid via coercion, oppression, or extortion it is recoverable under this
Section of the Indian Contract Act, 1872.
Case laws
In the case of Hari Ram Sheth Khandsari v. Commissioner of Sales Tax
(1958), the applicant of this case deposited the tax as a major turnover of
Khandsari and it was initially taxable at the rate of 2 percent. Because of a
mistake, in the fourth quarter, the applicant deposited the tax at the rate of
4 percent which means a total of Rs. 10,198.22 of excess money was
deposited. The concept of quasi-contract has been discussed even though the
definite term was not used in this case law.
For the very first time, the concept of quasi-contracts was introduced and
discussed in the case of Moses v. MacFarlane (2004). This was an English
case and in this case, the ruler of Mansfield stated that the commitment of
such sorts or in simpler words the obligation underlying quasi contracts was
based on the law as well as the justice with anticipation of not giving out
undue advantage to one person that might cost another person.
In the case of Spolka Anonyme v. Fairbairn Lawson Combe Barbour Ltd.

(1942), The courts stated that the obligations which arose in this case and
which shall arise in the future where an individual receives the benefits at the
cost of another person, then that type of commitment cannot be categorized
underneath the law of torts or contracts. They should be categorized under
the concept of restitution or quasi-contracts which are also called pseudo
contracts.
In the case of the State of Madhya Pradesh v. Bhailal bhai(1964), as

per Section 74 of the Indian Contract Act, 1872 which covers sales tax under
mistake, the Supreme Court held that, “the government to whom the
payment has been made by mistake must in law repay it” as the respondent
paid the tax under a mistake of law.
Similarities and differences

Similarities between contracts and quasi-contracts Differences between contracts and quasi-contracts
A quasi-contract is a fictitious contract that has been

pointed out by law. It is considered a valuable
suggestion by law as it is a cure for the distress of
the wronged party which isn’t the case in express
All the results of contracts and quasi-contracts are contracts.While talking about quasi-contracts, the
similar in nature.In the context of claiming the purpose of the parties is not taken under
compensation of the damages caused to the consideration but it is totally opposite when we talk
wronged party, the quasi-contracts are very similar about express contracts as discussing the purpose
to the contracts. To support this statement, we can here is a vital process. Without understanding the
look at Section 73 of the Indian Contract Act, intention of the parties, there would be no contract
1872 which states the remedies if any type of at all.In the case of a quasi-contract, the entire
quasi-contract is breached in different areas of the concept of the contract revolves around the
Indian Contract Act, 1872. obligation of the parties as they are used to identify
and shape the terms and conditions of the contract.
On the other hand, the obligations formed are
characterized because of the formation of the
contract.
Conclusion
To wrap everything up, we can say that, even though there are various types
of contracts and some may say that quasi-contract is a type of contract, it is
not as there are various differences highlighted in the article above.
A quasi-contract is not a contract in its natural context and therefore it is

also named an inverted contract. This is the reason why the term quasi-
contract is not stated out there expressively. The most simple principle it
follows is that a quasi-contract is a simple and basic contract that will not
and cannot supersede the requirement of justice.

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LAW OF CONTRACTS SEMESTER – 1(BA.

What is the definition of contract?

What are the essentials of a valid contract?

What is the nature of contract?

Types of contracts on the basis of

The Indian Evidence Act extends recognition to computer output, which is

Types of contracts on the basis of validity

1. There must be free consent between the parties involved.

A contract becomes void when it is unable to fulfil the conditions mentioned

1. Section 20 states that an agreement becomes void when there is a

Lack of capacity, duress, undue influence, deception, nondisclosure,

Types of contracts on the basis of nature

Types of contracts on the basis of

Standard form of contract

Legal Status of Standard form of Contract (SFC)

However, in many countries judiciary is empowered to apply the principle of

Unreasonable or Unfair terms

Theory of Fundamental breach

Types of Offer under Indian

An offer is defined under Section 2(a) of The Indian Contract

Performance of the conditions of a proposal, or the acceptance of any

General offer of continuing nature

Basic essentials of a cross offer

Here it is imperative to deduce that for a valid contract to be formed there

Acceptance of a counter proposal

Difference between an offer and Invitation to

In Adikanda Biswal v. Bhubaneswar Development Authority, when a

Rules regarding display of goods in shops

Features of a valid offer

The element of a valid offer

There must be two parties

Every proposal must be communicated

It must create Legal Relations

It must be certain and definite

It may be specific or general

This is known as Implied offer.

Difference between General Offer and

A general offer can be considered by A specific offer can be accepted by only a

Lapses and revocation of an offer

When communication is complete

Time of revocation of an offer

Revocation of the offer by the offeror

As specified in the definition, if the offer is accepted unconditionally by the

When an offer is accepted and it becomes promise it also becomes irrevocable.

Legal Rules and Conditions for Acceptance

• Acceptance must be absolute and

• Acceptance must be told to the offeror

• Acceptance must be recommended in the

Mere silence is not acceptance

When communication is complete?

Time of revocation of acceptance

Different types of agreements

The essential conditions of a valid agreement include:

• The agreement shall have a valid consideration.

Section 11 of the Indian Contract Act, 1872

Section 12 of the Indian Contract Act, 1872

Agreements of which consideration

Agreements restraining marriage A restrains his daughter B to marry C, who is a physically