Business Legislation: UNIT-1 Indian Contract Act

Indian contract act 1872
BUSINESS
LEGISLATION
UNIT-1
INDIAN CONTRACT ACT
Under the esteemed guidance of:
V.SRINIVAS
By
CH.Naveen(10102480) & V.Sambasivudu(10102480)
[Pick the date]
This material is extracted from books and from the internet we are not
responsible for any mistakes in this material. We can accept any suggestions
to improve it.
UNIT – I
• Importance of contract
• Essentials of contract
• Kinds of contracts
• Consideration
• Capacity of parties
• Free consent
• Legality of object
• Performance of contract
• Discharge of contract
• Quasi contracts
• Guarantee and indemnity
• Bailment and pledge
• Importance of contract
Contracts Help To Avoid Misunderstandings
A business contract states the terms and conditions of any business transaction, including
product sales and delivery of services. This helps the parties involved to avoid any type
of misunderstanding that may arise in the absence of a written contract.
If you are collaborating with a friend on your new business, then it is all the more
important to create a written contract. This will help you avoid any misunderstandings -
and consequently will save you from the rifts that might end your friendship.
If you have an oral agreement, you might forget some points that you have agreed on
verbally with the passage of time. But with a written agreement, all the terms and
conditions are crystal clear at any point in time. And you can always amend the
agreement with the consent of both the parties.
Written Contracts can be Enforced More Effectively Than Oral Contracts
Many people are unrealistic when it comes to creating contracts. You should not take it
for granted that the threads of your relationship (business, personal or otherwise) are
strong enough to face any crisis. The fact is that disagreements can and do arise,
especially between friends and family members, and especially when a close personal
relationship is intertwined with a business one.
When you get into a verbal contract, you may not mention things that seem to be obvious.
It is these issues that usually create trouble in the future when you want to enforce any
agreements that have been made. Conversely, when you get into a written contract, you
and all the parties involved are cautious enough to include all the details, making
disagreements later on far less likely.
1. ESSENTIAL ELEMENTS OF A VALID CONTRACT
1. “All contracts are agreements but an agreement are not contracts” – Discuss?
(OR)
Essential elements of valid contract?
Ans. Indian contract Act (I A), 1872, sec 2 defines a contract is “an agreement
enforceable by law.”
From the above definitation, the features of contract can be classified as
1. Agreement 2. Legal obligation.
1. Agreement: According to Sec2 (e), “Every promise or every set of promises forming
consideration for each other” is called an Agreement. Therefore,
AGREEMENT = OFFER + ACCEPTANCE
CONTRACT =AGREEMENT+ENFORCEABILITY AT LAW
FEATURES OF AN AGREEMENT:
1. Plurality of the parties
2. Consensus – ad-idem
3. Legal obligation
1. Plurality of the parties; for every agreement, there should be minimum two parties
because one person alone cannot enter into an agreement with himself.
2. Consensus – ad-idem; the minds of both the parties must be in ad-idem, i.e., both the
parties must think of the same subject matter the same time and in the same sense.
3. Legal obligation; an agreement, to become a valid contract, it should end in legal

relations. Agreements without legal obligation will not be able to construct a contract.
These agreements are purely domestic arrangements.
For EX. Agreement between husband and wife, father and daughter, etc.), they will not
be able to form any legal obligation between the parties.
BALFOWR (Vs) BALFOUR - 1919

Point Decided is – A husband promised to pay his wife a household allowance of £30
every month. Later the parties separated and the husband failed to pay the amount. The
wife sued for the allowance.Held, agreements such as these were outside the realm of
contract altogether.
“ All contracts are agreements but all agreements are not contr4act only those we
agreements which result in legal obligations can become valid contracts An agreement to
become a valid contract, it must fulfill to essential elements of a valid contract according
to sec 10 of ICA, 1872.
Essential Elements of a Valid Contract:

• Offer and acceptance
• Legal relationship
• Consensus – ad-idem
• Free consent.
• Capacity or competency of parties
• Lawful object
• Lawful consideration
• Certainty and possibility of performance
• Agreements not declared to be void
• Legal formalities
1. Offer and Acceptance; In order to create a valid contract, there must be an agreement
between tow parties. An agreement involves a valid offer by one party and valid
acceptance of the same by the other party.
The most important aspect of a valid proposal is that it should be voluntary. It should not
be an answer to a question or a replay to an enquiry and it should be communicated.
CASE: HARVEY (vs.) FACEY.
The most important aspect of a valid acceptance is that it should be given by the promise
only but not by any body else. So an acceptance given by a third party will not create a
promise.
CASE: BOULTON (vs.) JONES.
2. Legal relationship; the parties must intend their agreement to result in legal relations.
This means that the parties must intend that if one of them falls to perform his promise,
he shall be answerable for that failure in law the lending case on this point is
Rose and Frank Co. vs. Cromption Bros (1925)
Point decided is – Two firms entered into a written contract for the sell and purchase of
tissue paper the agreement contained a clause to the effect that “this arrangement is not,
nor is this memorandum written, goods were not delivered, the buyers brought an action
for non-delivery. It was held that there is no contract as the parties never intended to
create leglrealationship.
3. Consensus-ad-idem; the minds of both the parties must be ad-idem. In other words,
the tow parties must have agreed about the subject matter of the contract at the same time
and in the same sense.
EX: A, who owns two horses named Rajhans and Hansraj, is selling horse Rajhans to
B.B thinks he is purchasing horse Hansraj.There fore no consensus ad idem and
consequently no contract.
4. Free Consent (Permission or Willingness); an agreement must have been made by free
consent of the parties. Consent may not be free either on account of mistake in the minds
of the parties or an account of the consent being obtained by some unfair means like
coercion, fraud, misrepresentation or undue influence. In case of mutual mistakes, the
contract would be void, while in case the consent is obtained by unfair means, the
contract would be void able.
CASE: RANGANAYAKAMA (vs.) ALWAR CHETTY
5. Competency of parties: The parties to the agreement must be competent to contract. If

either of the parties to the contract is not competent to contract the contract is not void.
According to sec11, following are the persons who are competent to contract.
a) Who are of the age of majority according to the law to which they are subject?
b) Who are of sound mind
c) Who are not disqualified from contracting by any law to which they are subject?
6. Lawful object; the object of an agreement must be lawful. Object has nothing to do
with consideration. It means the purpose or design of the contract. Thus, when one hires a
house for sue as a gambling house; the object of the contract is to run a gambling house.
The object of the contract is to run a gambling house. The object is said to be unlawful if-
a) It is forbidden by law,
b) It is of such nature that if permitted it would defeat the provision of any law,
c) It is fraudulent.
d) It involves an injury to the person for property of any other;
e) The court regards it as immoral and opposed to public policy.
7. Law full consideration; All contracts must be supported by consideration. Gratuitous

promises are not enforceable by law. An agreement made for an unlawful consideration is
void. Lawful consideration requires both, the presence of consideration and the
lawfulness of consideration.
• The consideration may be past, present, or future.
• Consideration must be real.
• The consideration should also be real.
8. Certainty and possibility of performance; the terms of the contract must be precise
and certain. It cannot be left vague. A contract may be void on the grounds of
uncertainty.
EX. A agress to sell to B “a hundred tons of oil”. There is nothing whatever to show what
kind of oil was intend. The agreement is void for uncertainty.
EX: A agrees with B to discover treasure by magic. it is not enforceable.
9. Agreements not declared to be void; the agreement must not have been declared to
be expressly void. Agreements mentioned in Sec24-30 have been expressly declared to
be void.
They include agreements in restraint of marriage, agreements in restraint of legal
proceedings, agreements in restraint of trade and agreements by way of wager.
10. Legal formalities; an oral contract is a perfectly valid contract, except in those cases
where writing, registration, etc. is required by some statue. In India, writing is required in
cases of sale, mortgage, lease and gift of immovable property, negotiable instruments,
memorandum and articles of association of a company, etc. Registration is required in
cases of documents. Coming within the scope of sec 17 of the Registration Act.
EX: Time barred debt a promissory note with inadequate stamps.
Therefore, all the elements mentioned above must be present order to make a valid
contract. If any one of them is absent, the agreement does not become a contract.
Kinds of contracts
1. Voidable Contract: An agreement which is enforceable by law at the option of one or

more of the parties thereto, but not at the option of the other or others, is a voidable
contract. A contract is voidable when one of the parties to the contract has not exercised
his free consent. One of the essential elements of a formation of a contract for example,
free consent, is absent. All voidable contracts are those which are induced by coercion
fraud or misrepresentation. The person whose consent is not freely given may avoid a
contract. It therefore continues to be valid till the party whose consent is caused by
coercion, undue influence, fraud or misrepresentation choose to avoid the contract within
a reasonable time. Contract then is not binding on the other party.
2. Void Contract: A contract which ceases to be enforceable by law becomes void, when
it ceases to be enforceable. A void contract is a nullity from its inception. No rights
accrue there under. A contract may also be originally valid when entered into but
subsequently due to change in the events or circumstances, it may become void. It should
be noted that there cannot be a void contract because when the contract is void, it is no
contract at all. The right expression therefore is void agreement and not void contract.
3. Unenforceable Contract: A contract which cannot be enforced is a valid contract in

law, but is incapable of proof, and therefore cannot be enforced in the Court of Law.
4. Executed Contract: Where both the parties have performed their obligation, it is an
executed contract. Even when one party to the contract has performed his share of the
obligation, the contract is executed though to the other party is still under an outstanding
obligation to perform his part of the promise.
5. Executory Contract: Here neither party to the contract has performed his share of the
obligation, for example, both the parties have yet to perform their promises, the contract
is executory. In an executed contract one party has already performed his part of he
agreement while the other party has to perform his par. In an executory contract both the
parties have to perform their mutual promises and the fact that they have to perform their
parts of the contract does not affect the validity of the contract.
6. Express Contract: When the terms of a contract are reduced in writing or are agreed
upon by spoken words at the time of its formation, the contract is express.
7. Implied Contract: The terms of a contract are inferred from the conduct or dealing
between the parties. When the proposal or acceptance of any promise is made otherwise
than in words, the promise is said to be implied. Such an implied promise leads to an
implied contract. For example, A boards a bus. It is implied from his conduct that A has
entered onto an implied promise to purchase a ticket.
8. Quasi-Contract: Certain relations resemble those created by a contract. Certain

obligations which are not contracts in fact but are so in the contemplation of law. These
are called Quasi-Contracts.
Illustration:
‘A’ supplies necessities to ‘B’ who is not capable of contracting and reimbursing to ‘A’.
A is entitled to be reimbursed from B’s property.
Quasi contracts raise out of obligation enjoyed by one person from the voluntary acts of
the other which are not intended to be performed gratuitously
9. Contingent Contract: A contingent is one in which a promise is conditional and the

contract shall be performed only on the happening of some future uncertain event.
Illustrations:
‘A’ contracts to pay B Rs 10,000, if B’s house is burnt. This is a contingent contract.
10. Contracts of Record: A contract of record is one which is taken to the records of a
Court, for example judgment of a court. Such judgments create a binding effect through
the authority of the Court.
11. Specialty Contract: A specialty contract is a contract which is in writing signed,

sealed and delivered by the parties. It is also called a contract under seal. Consideration is
not necessary in a specialty contract.
12. Simple Contract: A simple contract s one which is not under seal. All contracts
which are not under seal are simple contracts. All simple contracts require consideration.
They may be made by written or spoken words. Contracts of Record and Specialty
Contracts are also known as Formal Contracts. The classification of contracts into
Contracts of Record, Specialty and simple is under the English Law. Indian Law does not
recognize contracts without consideration. All contracts must have consideration in order
the valid subject to exceptions under section 25 of the Act.
13. Statutory Contract: When all or some of the terms and conditions of contract are
statutory then the entire contract, or that extent as the case may be, would be regarded as
statutory contract.
Distinction between Voidable Contract and Void Contract:
1. A valid agreement has from the very beginning, no legal effects. It is enforceable
at law. A voidable contract is one which one of the parties may affirm or reject at
his option. It is void and enforceable till it is repudiated or rescinded.
2. The defect in the case of voidable contract is curable and may be condoned. But, a
void agreement is void and its defects are incurable.
3. In the case of a void agreement, even the third party cannot acquire any right from
person claiming under such contract while in the case of a voidable contract, a
third party can acquire a valid title from a person claiming under such a contract.
4. Since a void agreement is unenforceable at law, there does not arise any question
of compensation on account of the non-performance of the agreement. But in case
of a voidable contract, a person is entitled to compensation for loss or damages
suffered by him on account of non-performance of the contract.
5. A voidable contract does not affect the collateral transaction. But, where the
agreement is void on account of illegality of the object, the collateral transaction
will also become void.
OFFER:
An offer is a proposal by one party to another to enter into a legally binding agreement
with him. A person is said to make a proposal.
When one person signifies to another his willingness to do or to obtain from doing
anything with a view to obtaining the assent of that to such act or abstinence”-Sec 2(a).
The person making the proposal is called the proposes or offer or and the person to whom
the proposal is made is called the offence.
Eg. A offers to sell his motorcycle to B for 3000/- B agrees to pay A 3000/- for the
motor cycle. Here A is called offeror or promisor and B the offeree or promise.
How an offer is made;

An offer may be either ‘express’ or ‘implied’ from the conduct of the parties. An
‘Express Offer’ is one which may be made by words spoken or written. Thus, where A
offers to sell his pen to B for 10/- it is an express offer.
An ‘Implied Offer’ is one which may be gathered from the conduct of the party or the
circumstances of the case. Thus, stepping into a local bus & consuming eatables at a self
service restaurant, both create implied promises to pay for the benefits enjoyed.
To Whom an Offer can be Made:-

An offer may be specific or general. Where an offer is made to a definite person or body
of persons, it is called a ‘Specific Offer’. A Specific offer can usually be accepted only by
the person or persons to whom it is made.
On the other hand, when an offer is addressed to the whole world, it is called a “General
Offer.” A general offer can be accepted by any one.
The leading case on this point is
CARILL (vs.) CAR BOLIC SMOKE BALL Co. (1893)
Facts- A Carbolic Co advertised in a news paper, a reward of 100/- to anyone who

contracted influenza after taking its medicine. The plaintiff Mrs. Carill used the medicine
and still contracted influenza. Held- she could recover the amount as she has accepted the
offer.
Points decided-
1. An offer may be made to the world at large in general.
2. A contract is made only with that person who comes forward and performs the
conditions of the offer.
3. In a general offer, the communication of acceptance is not necessary.
Essentials of a valid offer;

1. It must be capable of creating legal relations
2. It must be certain, definite and not vague.
3. It must be communicated to the offeree
4. It must be made with a view to obtaining the assent of the other party.
5. Special terms or conditions in an offer must also be communicated.
6. It should not contain a term, the non-compliance of which would amount to
acceptance.
7. Lapse of an offer.
8. Invitation to offer is not an offer.
9. Cross offers counter offers.
10. Offer may be expressed or implied.
1. Offer must be capable of creating legal relations: The offeror must intend the
creation of legal relations. He must intend that if his offer is accepted, a legally binding
agreement shall result.
Eg. A accepts an invitation to dine at B’s place on a certain date but fails to turn up on
the appointed date. A cannot be sued for breach of a contract, because in contracts
regulating social or domestic arrangements, the presumption is that parties do not intend
legal consequences to follow form the breach of a contract.
2. Offer must be certain, definite and not vague: No contract can come into existence
if the terms of the offer are vague and indefinite. To constitute a valid agreement, it is
essential that the proposal must be so certain, that the rights and obligations of the parties
arising out of the contract can be exactly fixed.
The Leading Case-Taylor vs. porting ton (1855)
A agreed to take B’s house on rent for three years at the rent of £85 per annum provided
the house was put into through repair and the drawing rooms were decorated to present
style.
It is a vague term, because the term “present style “may mean one thing to A and another
to B.Hence,the agreement was void on the ground that the terms of offer were vague and
uncertain.
Point decided is – when the terms of an offer are uncertain and vague agreement is void.
3. Offer must be communicated to the offeree; There can be no offer by a person to

himself. It must always be communicated to the offeree. If there is no communication of
an offer, there is no acceptance resulting in the contract. Thus, if A writes a letter to B
offering to sell his watch for 200/- but never post the letter and keeps it in the pocked, it
is not an offer and B can never accept it.
Further, a person cannot accept an offer which he does not know has been made. If B
had found A’s lost dog, but had not seen the advertisement offering the reward and had
proceeded to return the dog to out of goodness of heart, B would not able to claim the
reward, since he could not held to accept an offer of which he was unaware.
The Leading Case – Lalman Shukla (vs). Gauri Dutt -1913
D sent his servant P to trace his missing nephew sent his servant P to trace his missing
nephew in the meantime announced a reward for providing information about the missing
boy.P, in ignorance of the announcement traced the boy and informed D.P later on came
to know of the reward and he claimed it. His claim was dismissed on the ground that he
was ignorant of the offer. It was further held that it was the duty of the servant to search
for the boy.
Point decided is – offer must be communicated and there can be no acceptance unless
there is knowledge of the offer.
4. Offer must be made with a view to obtaining get the assent (acceptance) of the
other party:- An offer must be distinguished from mere expression of intention. An offer
or proposal to do or obtain from doing anything must make with a view to obtaining the
assent of the other party to whom offer is made. Mere enquiry is not an offer.
CASE: HARRIES (vs.) NICKERSON:
N advertised in the newspaper to effect sale of his goods on a particular day at a
particular place travelled a long distance to bid for the things. On arrival, he found that
the sale was cancelled. He sued N for breach of contract. It was held that advertisement
was merely expression of an intention and not an offer which could be accepted by
travelling to the place of indented sale.
5. Special terms or conditions in an offer must also be communicated:

The offeror is free to lay down any terms and conditions in his offer,and if the other party
accepts the offer then he would be bound by those terms and conditions.The important
point is that there are some special terms and conditions they should also be duly
communicated.
CASE-PARKER (vs.) SOUTH EASTERN RAILWAY CO (1877)

P deposited his bag at the cloak room at a railway station and received a ticket for
containing on its face the words “see back”. On the back of the ticket there was a
condition that, “the company will not be responsible for any package exceeding the value
of to £10”.A notice to the same effect was hung up in the cloak room.P’s bag was lost
and he claimed the actual value of the lost bag,£24,10s.The claim was negative and done
only£10 was awarded. That P did read the conditions was his fault as the railway
company had done what was reasonably expected of it.
6. Offer should not contain a term the non-compliance (with act reply) of which th
would amount to acceptance:- one cannot say while making the offer that if the offer is
not accepted before a certain date, it will be presumed to have been accepted.
Ex. A writes to B, “I offer to sell my house for 40,000/-. It I do not receive a reply by
Monday next, I shall assume that you have accepted the offer”. There will be no contract
if b does not reply.
7. Lapse of an offer: - An offer lapses:

a) If either offeror or offeree dies before acceptance
b) If it is not accepted within 1) the specified time, or 2) a reasonable time, if no time
is prescribed. What is a reasonable time depends on the circumstances.
c) If the offeree does not make a valid acceptance, eg makes a counter offer or
conditional acceptance.
8. An invitation to offer is not an offer: An offer must be distinguished from an

invitation to treat or as it is sometimes called an invitation to offer. In the case of an
invitation to offer, there is no intention on the part of the person sending out the invitation
to certain the assent of the other person to such invitation. His aim is to merely circulate
information if his readiness to negotiate business with anybody, who, an such information
comes to him. Such invitations are not offers in the eyes of law and do not become
promises on acceptance.
The display of goods in a shop with price tags attached is an invitation to offer.
Catalogues containing description of goods held for sale at the prices quoted are not
offers. A price list is not an offer to sell the goods at the listed prices. It is an attempt to
induce offers and not an offer in itself. The display of goods on the shelves of the self
service shop is merely an invitation to offer, and the customer makes an offer to buy
when he carries the goods to the cashier.
The leading case – Harvey Vs Facey-1893
Harvey sent a telegram to facie stating “will you sell us the estate of Bumper Hall pen for
sum of £900 against”. Harvey sent another telegram to facie stating ‘we agree to buy
Bumper Hall pan for sum of £900 asked by you. Please send us your title deeds in order
that we may get early possession’.
But facie did not send any replay to the last telegram sent by Harvey. Hence Harvey filed
case against Facie claiming the Bumper Hall pen estate. The court held that there was no
concluded contract.
9. Cross offers counter offers:
Cross offers: Identical offers made by person in ignorance of each other are known as
cross offers. They do not make a contract.
EX: H wrote to T offering to sell 800 tons of iron at 69s. On the same day T wrote to H
offering to buy 800 tons at 69s.This is a cross offer and hence does not constitute a
contract.
Counter Offer: - A counter offer is a rejection of the original offer and making a new
offer. This new offer is a counter offer. A person who makes a counter offer and
subsequently changes his mind and wishes to accept the original offer cannot do so as the
first offer lapses and he cannot treat it as still offer.
The leading case: Hyde Vs Wrench -1840
A offered to sell a farm for £1,000. X said he would give £950.A refused and X then said
he would give £1, 000, and when he decided to his original offer tried to obtain specific
performance. Held there was no contract as X’s offer to pay £950 was a refusal of the
offer and a counter-offer; and that when he later said he would pay £1,000,he was making
a new offer, which would have to be accepted by A before a binding contract could come
into existence.
Point decided; - A Counter offer is a rejection of original offer.
10. Offer may be expressed or implied.

A proposal can be made either in words spoken or in words written. Such proposal is
called an express proposal. It can also made by the action of the parties. Such proposal is
known as implied proposal.
Revocation of offer:
Q. When does an offer come to an end?
A. Revocation (come back) of offer arises only if these has been no acceptance of the
after by the time of revocation. An offer may come to an end by revocation or lapse or
rejection.
According to sec6 of the Act a proposal may be revoked in any of the following ways:-
Modes of revocation of offer:-

1. By notice of revocation.
2. By lapse of time.
3. By non-fulfillment of condition precedent
4. By death or insanity.
5. By counter offer.
6. By the non-acceptance of the offer according to the prescribed or usual made.
7. By subsequent illegality
A. By notice of revocation: offer may be revoked by a communication of a

notice of revocation by the ofference to the other party. An offer made in
writing may be revoked by words of mouth. The notice of revocation may

not always be express. A notice of revocation to be effective must be
communicated to the offeree.
B. By lapse of time: A proposal will come to an end by the lapse of time

prescribed in such proposal for its acceptance or, if no time is so
prescribed, by the lapse if reasonable le time. What is a reasonable time is
a question of fact depending upon the circumstances of each case.
C. By non-fullment of condition precedent; A proposal is revoked when the

acceptor fails to fulfill a conditions precedent to the acceptance of the
proposal. Thus X may offer to sell certain goods to Y on a condition that
Y pays a certain amount before a certain date. The proposal is revoked if
Y fails to pay the required amount within given time.
D. By death or insanity; A proposal is revoked by the death or insanity of

the proposer if the fact of this death or insanity comes to the knowledge of
the acceptor before acceptance.
E. By counter offer; An offer comes to an end when the offeree makes a

counter offer. Where an offer is accepted with some modification in the
terms of the offer or with some other condition not forming part of the
offer, such qualified acceptance amounts to a counter offer. An offer once
rejected cannot be revived.
Ex. An offer to sell his house to B for 1000/- B replies offering to pay
950/- A refuses subsequently, B writes accepting the original offer has
lapsed.
F. By the non-acceptance of the offer according to the prescribed or

usual made: The offer will also stand revoked if it has not been accepted
according to the made prescribed.
G. By subsequent illegality: An offer lapses if it becomes illegal after it is

made and before it is accepted. Thus, where an offer is made to sell to bag
of wheat for 2500/- and before it is accepted, a law prohibiting the sale of
wheat by private individuals is enacted; the offer comes to an end.
Acceptance
When the person to whom the proposal is made signifies his assent, it is an
acceptance of the proposal. Acceptance may be expressed or implied (spoken
words or goes to hotel and eats some food impliedly accepts)
Essentials of a Valid acceptance:
1. Acceptance must be absolute and unconditional.
case law : Hyde Vs Wrench ( H offered to sell his property to W $1000.W

in reply made an offer of $ 950)
2. Acceptance must be communicated to the offeror:
Case law : Powell Vs Lee ( the board of director of a school)
3. Acceptance must be made within a reasonable time
CONSIDERATION
Introduction / Meaning: whenever a party to an agreement promises to something, he
must get something in return. This something in return is called ‘consideration’.
It may be used in the sense of “Quid-Proque” i.e., something in return. An agreement
without consideration, subject to certain exceptions is void.
Consideration may not be always in the form of money, it may take form of money,
goods, services, a promise to marry etc.
Definitation: Sec2 (d) – When at the desire of the promisor, the promise any other
person has done or abstained from during something, such as or promise is called
consideration for the promise”.
Essentials of valid consideration:

1. It must more at the desire of the promisor
2. It may move from the promisse or any other person
3. It may be past, present or future.
4. It need not be adequate
5. It must be real
6. It must be lawful
7. It must be something which the promisor is not already bound to do.
8. There should be one consideration for one agreement
9. Consideration is very essential in every contract
10. Consideration may be any form:
1. It must move at the desire of the promisor: the first essential characteristic of
consideration is that the act or abstinence must have been done at the desire of the
promisor. It follows that any act performed at the desire of a third party, cannot be a
consideration. The desire of the promisor may be express or impled.
CASE: DURGA PRASAD (VS) BALDEO (1880)
B spent some money on the improvement of a market at the desire of the collector of the
district.In consideration of this D who was using the market promised to pay some money
to B.Held,the agreement was void being without consideration as it had not moved at the
desire of D.
2. It may move from the promissee or any other person: the second important feature
of the definition of consideration in Sec2 (d) is that the act which is to constitute a
consideration may be done by the “promise or any other person”. It means that as long as
there is a consideration for a promise, it is immaterial who has given it. It may have move
from the promise, or if the promisor has no objection, form any other person.
The leading case – Chinnaya(vs) Ramaya –(1982)
An old lady, by a deed of gift, made over certain property to her daughter D, under the
direction that she should pay her aunt (sister of the old lady), a certain sum of money
annually. The same day D entered into an agreement with P to pay her the agreed
amount.
Later, D refused to pay the amount on the plea that no consideration had moved
From P to D. Held was entitled to maintain suit as consideration had moved from the old
lady, sister of P, to the daughter
Point decided – consideration may move from the promise or any other person
3. Consideration may be past present or future: consideration may be past, present or

future -
. Past consideration: when the consideration for a present promise was given before the
date of the promise, it is said to be past consideration.
Present consideration: when the consideration for a promise is given simultaneously with
the promise, it is called present consideration.
Future consideration; A future or executary consideration is a promise to do or give

something in return in future for the promise then made. It is also called a promise for the
promise.
4. It need not be adequate; It is no where laid down that consideration should be

adequate to the promise. What is required is that there must be some consideration for the
promise. Adequacy is for the parties to decide at the time of making the agreement.
Inadequacy of consideration is no ground for refusing the performance of the promise,
unless it is evidence of fraud. It should be of some value in the eyes of law. Even a
smallest consideration is sufficient provided it has some value. If a man gets what he
contracted for the court will not inquire whether it was an equivalent to the promise
which he gave in return.
EX: A agrees to sell his watch worth Rs.1000 to B for Rs.10.The agreement is contract
not withstanding the inadequacy of consideration, provided there exist free consent.
5. Consideration must be real: Though consideration need not be adequate, if it must be

real and not illusory. Thus, a promise to do that which a person is by law bound to do,
does not amount to consideration. Consideration has also to be competent. If it is
physically impossible, vague do legally impossible, the contract cannot be enforced.
Thus, a promise by a man to make two parallel lines meet is no good consideration.
A. Physical impossibility:
EX: P promises to G to run at a speed of 200 kilometers an hour if Q pays him Rs.5000.
P’s promise is physical impossible of performance
B.Legal impossibility:
X who owes Rs.1000 to Y promises to pay Rs.200 to Z,the servant of Y,who in return
promises to discharge X from the debt. This is legally impossible because Z cannot give
discharge for a debt due to Y, his master.
C.Uncertain consideration:
Ex: A engages B for doing a certain work and promises to pay a “reasonable”sum.There
is no recognized method of ascertaining the reasonable remuneration. The promise is
uncertain and hence unenforceable
.D.Illusory consideration:
EX: Two of the crew of a ship deserted it half way through a voyage. The captain thereby
promised to divide the salary of the deserters among the rest of the crew if they worked
the vessel home.Held; they could not recover the amount as the consideration was
illusory. They were already under an obligation to bring the vessel home.
6. Consideration must be lawful; the consideration for an agreement must be lawful. An

agreement is void, if it is based on unlawful consideration. The consideration of an
agreement is lawful unless:
• It is forbidden by law;
• It is of such a nature that if permitted; it would defeat the provision of any law;
• It is fraudulent
• Involves or implies injury to the person or property of another
• The court regards it as immoral opposed to public policy.
7. It must be something which the promissory is not already bound to do:

Consideration must be something more than what the promise is already bound to do. In
other words a promise to do what one is already bound to do, either by general law or
under an existing contract, is not a good consideration for a new promise.
8. There should be one consideration for one agreement.

Every agreement should have one consideration. Demanding extra consideration or
second consideration from the same agreement becomes invalid. Similarly one agreement
should be based on one codsideration.Two or more agreements cannot be based on a
single consideration.
CASE: RAMACHANDRA CHINTAMANI (VS) KALU RAJU(1877).
In this case, an Advocate agreed to complete a case for a consideration of Rs.1000.Later
he demanded extra consideration for obtaining the judgment in a short period for which
the client agree but the court of law held that the second consideration cannot be claimed.
9. Consideration is very essential in every contract:

Consideration is a very important feature in every contract. A promise cannot become an

agreement without consideration and an agreement cannot become a contract without a
lawful consideration.
10. Consideration may be any form:

Consideration is denoted as “something “in the legal definition. Later it is explained as an
act or abstinence or a promise.However,it may be any form such as payment of cash,
delivery of goods, doing something, not doing something, making a profit, bearing a loss,
rendering services,.
Q) “A stranger is consideration can sue, but a stranger to contract

cannot sue” comment?
A) Stranger to a Contract:
It is a general law of contract that a person who is not a party of the contract cannot sue
on it. This means that unless there is a privity of contract, a party cannot sue on a
contract. Privity of contract means the relationship existing between the parties to a
contract. It means that no one but, the parties to a contract can be bound by it or be
entitled under it. Therefore, it is clear that a stranger to a contract cannot sue for the
contract.
Dunlop Pneumatic Tyre Co. Vs Selfridges & Co. 1915
Point decided is: a contract cannot be enforced by a person who is not a party to it, even
though it is made for his benefit.
Stranger to consideration:
A stranger to a contract cannot sue on it, but a stranger to consideration can sue for it
consideration. If the contract is made for the benefit of the stranger as if the consideration
is falling on the stranger.
A stranger can sue for consideration in the following cases:
1. In case of trust, the beneficiary may enforce the contract; even though he is a
stranger to the contract, creating trust. A stranger can sue when he is beneficiary under an
obligation, amounting to a trust, arising out of the contract.
Case; Amirullah vs. Central Govt. 1959
A sent an ensured parcel to B by post. The parcel was misplaced and did not reach the
addressee. B filed a suit for compensation for non-delivery of the parcel.
Point decided; it was held that B was entitled to have compensation as a trust had been
created in favour of the addressee.
2. Where the provision is made in a marriage settlement. Where an agreement is

made in a connection with marriage and a provision is made for the benefit of a person,
he may take advantage of that agreement, although he is not a party to it.
Case; Khwaja Mohd Khan vs. Hussaini Begum1910:
D agreed with p’s father that he would pay to P, 500/- p.m. as kharh-i-pandon, if P
marries d’s son. The allowance was stopped sometime after the celebration of marriage. P
sued D, her father-in-law, for the arrears of allowance.
Point decided; it was held that P could recover the money, even though she was not a
party to the contract.
3. Where a provision is made in a partition or family arrangement for maintenance,

or marriage expenses of female members, such members, though not parties to the
agreement, can sue, for the agreement consideration.
Case Daropti vs. Jaspat Rai 1905

B’s wife left him because of his cruelty. He then executed an agreement with her father
promising to treat her properly, or if he is failed to do so, to pay her monthly maintenance
and to provide her with dwelling subsequently, she was again treated by D and also
driven out.
Point decided; she was entitled to enforce the promise made by D to her father.
Case Shuppuammal vs. Subramanyam 1910

Two brothers, in a partition deed, agreed to pay 300/- in equal shares to their mother for
maintenance. The brothers subsequently refused to pay the amount.
Point decided; on a suit, it was held that, the brother could enforce the promise, even
though she was a stranger to the contract.
4. Where a charge is created in favour of a stranger on a specific immovable property,

a stranger to a contract can sue for that property.
5. Where the promisor by his conduct, created privity of the contract with the
stranger, the stranger can sue for consideration.
Ex; if a admits to C that he had received money from B for payment to C, he constitutes
himself as the agent of C, who can successfully recover the amount from A.
6. Contract entered into by an agent can be enforced by the principal.
Q) “No consideration- No contract” – explain and give exceptions

When a party to an agreement promises to do something, he must get something in
return. This “Something in return” is called “consideration”.
Note; Introduction and Definition same as for consideration.
No Consideration No Contract Importance of consideration:
Consideration is the foundation of every contract. It is the sign and symbol of every
bargain. A promise without consideration is null and void. It is called a naked promise or
a Nudun-Pactum.
According to the meaning and definition of consideration, whenever a party promises to

do something, he should get something in return, where this something in return can be
called as consideration.
Therefore, from the above illustrations, it is clear that without consideration, there won’t
be any contract. So, one can say that” No consideration-No contract.”
Sec 25 of ICA supports this context and provides that agreement without consideration is
void.
No consideration-No contract- Exceptions:
Every agreement, to be enforceable at law, must be supported by void consideration. An
agreement made without consideration is void and enforceable, except in certain cases.
Sec 25 specifies the cases where an agreement even though made without consideration
will be valid. They are as follows.
1. Natural Love and affection Sec 25/11: an agreement made without consideration will
be valid if it is in writing and registered and is made on account of natural love and
affection between parties standing in a near relation to each other.
An agreement without consideration will be valid provided:
a) It is expressed in writing
b) It is registered under the law for the time-being.
c) It is made on account of natural love and affection.
d) It is between the parties standing in a near relation to each other.
Ex; A from natural love and affection, promises to give his Son’s, Rs. 1000/- A puts his
promise to B in writing and registers it. This is a valid contract.
Ex. A by registered agreement, on account of love and affection, for his brother B,
undertook to discharge a debt due by B to C. actually, A did not fulfill the promise. So, B
paid the debt.
It was held that B could recover the amount of debt from A.
Venkatswamy vs. Ranga Swamy 1903
Point decided; agreement made on account of natural love and affection. But not
supported by consideration is valid.
Compensation for services rendered (Sec 25(2); an agreement made without
consideration may be valid, if it is a promise to compensate wholly or in part, or person
who has already voluntarily alone something for the promisor.
To apply this rule, the following essentials must exist.
The act must have been done voluntarily.
 It must be a legal obligation of the promisor
 The promise must be in existence at the time when the art was done.
Ex; A finds B’s purse and gives it to him. B promises to give A, 500/-. This is a
contract.
2. Time-barred debt; A promise to pay a time-barred debt is also enforceable. But, the
promise must be in writing and must be signed by the promisor or his agent. This promise
may be to pay the whole or part of the debt. An oral promise to pay a time-barred debt is
enforceable.
Ex; D owes C, Rs. 1000/- but the debt is barred by the limitation act. D signs a written
promise to pay C Rs.500 on account of the debt. This is a contract.
3. Completed Gifts; no consideration – No contracts shall not affect validity on any

gifts, actually made between the donor and the donee.
Thus, if a person gives certain properties to another according to the provisions of the
Transfer of property Act, he cannot subsequently demand the property back, on the
ground that there was no consideration.
4. Agency; it is given in sec 185 which says that no consideration is needed to create an
agency.
Ex. A father choosing his minor son as his agent without paying commission or salary is
a valid agency.
Capacity of Parties – Minor

Q) Parties to a contract must be competent to contract-explain.
(OR)
Q) Discuss the provisions of law relating to contract by minor?
A) Capacity means competence of the parties to enter into a valid contract. One of the
essential conditions which make an agreement as a contract is that all the parties to it
must have capacity to enter into a contract.
Sec 11 of the contract act deals with the competence of parties and provides that every
person is competent to contract who is of the age of majority according to the law and
who is of sound mind, and is not disqualified from contracting by any law to which he is
subject.
According to sec 11, the following persons are incompetent to contract

• Minor
• Persons of unsound mind
• Persons disqualified by any law to which they are subject.
Contracts entered into by persons mentioned above are void.

Minor. An infant or a minor is a person who is not a major. According to the Indian
majority Act, 1875 a minor is one who has not completed his /her 18 years of age.
A minor has an immature mind and cannot think what is good or bad for him. Minors are
often exploited and their properties stolen. As such, he must be protected by law from
any exploitation or ill-design.
Rules regarding minor’s agreement;

• Agreement void-ab-inito
• No ratification
• Minor can be a promise or beneficiary.
• No estoppel against minor
• No specific performance.
• Liability for mistake
• No insolvency.
• Partnership.
• Minor can be an agent.
• Minor cannot bind parent or guardian.
• Joint contract by minor and adult.
• Liability for necessaries.
1. Agreement void-ab-intio; according to sec11, it made it perfectly clear that a minor

is not competent to contract and that a contract by a minor is void-ab-inito.
Mohri Bibi vs. Dharmodas Ghose 1903:
Point decided; an agreement with a minor is absolutely void
Facts of the case; A, a minor, borrowed 20000/- from B and as a security for the same,
executed a mortgage in his favour. He became a major a few months later and filed a suit
for the declaration that the mortgage executed by him during his minority was void &
should be cancelled.
It was held that a mortgage by a minor was void & B was not entitled to repayment of
money.
2. No Ratification; an agreement with minor is completely void. A minor cannot ratify

the agreement even an attaining majority because a void agreement cannot be ratified. A
person, who is not competent to authorize an act, cannot give it validity y ratifying it.
Thus, where a minor borrowed a sum of money by executing a single promote for it and
after attaing majority, executed a second promote in respect of the original loan plus
interest thereon, a suit upon the second promote is not valid.
3. Minor can be a promise or a beneficiary; it a contract is beneficial to a minor, it can

be enforced by law him. There is no restriction on a minor from being a beneficiary like
being a payee or a promise in a contract. Thus, a minor is capable of purchasing
immovable property and he may sue to recover the possession of the property upon
tender of the purchase money. Similarly, a minor, in whose favour, a promissory note has
been executed can enforce it.
The General American Insurance Co. Ltd. vs. Madan Lal Sonu Lal.
Facts of the case- X a minor insured his gooda with an insurance Co. the goods were
damaged. X filed a suit for claim. The Insurance Co. took plea that the person on whose
behalf the goods were insured was a minor.
The court rejected the plea and allowed the minor to recover the insurance money.
where a minor, by misrepresenting his age, his induced the other party to enter into a
contract with him, he cannot be made liable on the contract. There can be no estoppel
against a minor. In other words, a minor is not stopped from pleading his in fancy in
order to avoid a contract.
Facts of the case; an infant represents fraudulently that he is of age and there by induces
another to enter into a contract with him. Then, in an action founded on the contract, the
infant is not estoppel from setting up infancy. The court may, however, require the minor
to compensate the other party on the ground of equity. This is based on the rule that a
minor can have on the ground of equity.
Fraudulent misrepresentation as to age by an infant will operate against him in certain
cases. If a minor obtains property or goods by misrepresenting his age, he can be
compelled to restore it, but only so long as the same is traceable in his possession.
4. No specific performance; a minor’s contract being absolutely void, there can be no

question of the specific performance of such contract. A guardian of a minor cannot blind
the minor by an agreement for the purchase of immovable property, so that minor cannot
ask for the specific performance of the contract which the guardian had no power to enter
into.
5. Liability for torts; a minor is liable in tort. Thus, where a minor borrowed a horse for
riding only, he was held liable when he lent the horse to one of his friends, who jumped
and killed the horse. Similarly, a minor was held liable for his failure to return certain
instruments which he had hired and then passed on to a fried. But, a minor cannot be
made liable for a breach, of contract by framing the action on tort. You cannot convert a
contract into a tort to enable you to sue on infant.
6. No insolvency: A minor cannot be declared insolvent even though there is dues

payable from the properties of the minor.
7. Partnership; A minor being incompetent to contract cannot be a partner in a

partnership firm. But, under Sec 30 of the Indian partnership Act, he can be admitted to
the benefits of partnership.
8. Minor can be an agent; A minor can act as an agent. But, he will not be liable to his
principal for his act. A minor can draw deliver and endorse negotiable instruments
without himself being liable.
9. Minor cannot blind parent or guardian; in the absence of authority, express or

implied, an infant is not capable of binding his parent or guardian, even for necessaries.
10. Joint contract by minor and adult; in such a case, the adult will be liable on the
contract, but not the minor.
11.Liability for necessaries; the case of necessaries supplied to a minor or to any person
whom such minor is legally bound to support is governed by sec 68 of the ICA. A claim
for necessaries supplied to a minor is enforceable at law. But, a minor is not liable for any
price that he may promise and never for more than the value of necessaries. There may
promise and never for more than the value of necessaries. There is no personal liability of
the minor, but only his property is liable. A minor is also liable for the value of
necessaries supplied to his wife.
Persons disqualified from contracting by any other law; it refers to statutory

disqualifications imposed on certain persons in respect of their capacity to contract;
• Alien enemies
• Foreign sovereigns and ambassadors
• Insolvents
• Convict
• Corporations
• Married Women
• Professional persons
FREE CONSENT
Consent: It means acquiescence or act of assenting to an offer.
Section 31:”Two or more persons are said to consent when they agree upon the
same thong in the same sense”.
Consent is said to be free when it is not caused by
1. Coercion
2. Undue influence.
3. Fraud.
4. Misrepresenation
5. Mistake.
1. COERCION :( section- 15):
Coercion means forcibly compelling a person to enter into a contract, the consent of the
party is obtained by use of force or under a threat. The act defines coercion as:
A. The committing or treating to commit, any act forbidden by the Indian penal code,
OR
B. 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.
EX: X threatens to shoot Y if he does not lend him Rs.5000 and Y lends the money. It
amounts to coercion.
1. Committing any act forbidden by the IPC:

The IPC has forbidden the Indian citizens from committing a number of offences, like
murder, suicide, kidnapping, unlawful detentions, stopping a dead body from cremation.
So when a person obtained of a party to a contract by committing any of these acts, the
consent is said to have been by coercion. Such agreement becomes voidable.
CASE: RANGANAYAKAMMA (VS) ALWER CHETTY (1889).
A young girl of 13 years was forced to adopt a boy to her husband who had just died by
the relatives of the husband who prevented the removal of his body for cremation until
she consented. Consequently the adoption of the boy on the ground of coercion.
2. Threatening to commit any act forbidden by IPC:

If a person obtains the consent of another to a contract by threating him that an act
forbidden by the IPC would be commited,it also becomes equivalent to coercion, such
agreement can also be avoided on the ground of coercion.
CASE: AMIRAJU (VS) SESHAMMA (1917):
A person held out a threat of committing suicide to his wife and son if they did not
execute a release in favour of his brother in respect of certain properties. The wife and
son executed the release deed under the threat.Held,the threat of suicide amounted to
coercion.
3. Unlawful detaining or threatening to detain any property.

When a person obtains the consent of another to a contract by detaining the property of
any other person unlawfully, it will also become coercion.
CASE; MUTHIA (VS) MUTHU KARUPPA (1927);
An agent refused to hand over the account books of a business to the new agent unless
the principal released him from all liabilities. The principal had to give a release deed as
demanded.Held; the release deed was given under coercion and was voidable at the
option of the principal.
4. Coercion may be committed anywhere in the world:

The IPC applies to Indian land only. Any offence committed outside the Indian
boundaries is not punishable under IPC.But coercion committed either in India or outside
India can make the agreement voidable if a suit is filed in India.
5. Coercion may be direct or indirect:

Coercion may be committed by one party of the contract against the other party or
through a third party.Therefore, it can be director indirect. But as per British law of
contracts it should be direct only but not indirect. It is known as Duress under that law.
2. Undue influence (section -16)

Undue influence is the improper use of any power possessed over the mind of the other
contracting party. It is also referred to as ‘EQUITABLE FRAUD”. It creates a mental or
moral fear as against physical fear created by coercion.
ESSENTIALS:
1. The relation subsisting between the parties should be such that one of them is in a
position to dominant the will of the other, and
2. The dominant party should have used that position to obtain an unfair advantage over
the other.
PRESUMPTIONS:
1. Where he holds a real or apparent authority over the other.
2. Where he stands in a fiduciary relation (a position of active confidence)to the other.
3. Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental distress or bodily distress.
Thus, the following relationships are said to raise a presumption of undue influence.
1. Parent and child.
2. Doctor and patient.
3. Lawyer and client
4. Guardian and ward.
5. Trustee and beneficiary.
Ex:A having advanced money to his son,B,during his minority, obtains upon B’s coming
of age, by misuse of parental influence, a bond from B for a greater amount than the sum
due in respect of the advance. A employs undue influence.
CASE: RANEE ANNAPURNI (VS) SWAMINATH (1910).
A poor Hindu widow was persuaded by a money-lender to agree to pay 100 percent rate
of interest on money lent by him to her. She needed the money to establish her right to
maintenance.Held, it was a case of undue influence and the court reduced the rate of
interest.
The following conditions are to be satisfied to prove that a consent in a contract was
obtained by undue influence.
1. Existence of previous relationship.
2. One party standing in dominating position.
3. Taking undue advantage.
4. Agreement appearing to be unreasonable.
5. Agreements with pardanashin women.
3. FRAUD (section-17):
Fraud means and includes any of the following acts committed by a party to a contract.
1. The suggestion, as to a fact, of that which is not true, by one who does not believe it to
be true.
2. The active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive
5. Any such act or omission as the law specially declares to be fraudulent.
Therefore, the following acts are considered as fraudulent acts under the law of contracts.
1. False suggestion:
When a person gives untrue statement about the subject matter of the contract knowing
that his statement is untrue and obtains consent of other party, the consent can be said to
have been obtained by fraud.
Ex: A person quoted the age of his son as 24 years while entering into a marriage
agreement where as the age was more than 40 years.Therefore.the bride’s father filed a
suit to avoid the agreements on the ground of fraud. The court of law allowed it.
2. Active concealment of facts:

When a person obtains the consent of another to a contract by hiding some important
facts about the subject matter, which are very essential for giving consent, it also become
fraud.
3. A promise made without any intention of performing it:

When a person obtains consent of another person to an agreement promising to do
something where as he does not have any intention to do it, it also to be fraud.
Ex:An English merchant promised his personal secretary, an Indian lady that he would
marry her. Later she came to know that he was already married in England. So she filed a
suit to avoid the agreements on the ground of fraud.
4. Silence is not a fraud:

Mere silence of a person regarding facts of a contract will not become fraud except in the
following two circumstances.
1. When the silence is equivalent to speech, which is equivalent to fraud.
2. When it was the duty of the person to speak out but he did not do so.
EX; A was selling a mad horse in a village market and his son B came to buy the horse.It
becomes the duty of A to disclose the defect of the horse to B to whom he stands in a
fiduciary relation. If he does not speak out, it becomes fraud.
5. Any act specially declared as fraud:

Various laws in India have declared different acts as fraudulent, If a person does any one
of such acts, to obtain consent of a party to a contract, it becomes fraud such as:
• Issue of shares by directors of a company without issuing prospectus.
• Selling immovable property without disclosing all the facts about the property.
• Taking up a life insurance policy hiding any information about health of the
insured.
• Entering into marriage agreements, hiding vital facts about the bride or bride
groom.
CONSEQUENCE OF FRAUD:
1. He can rescind the contract.
2. He can sue for damages.
MISREPRESENTATION (section-18):
It means misstatement of a fact material to the contract. It is a false representation made
innocently, before or at the time of the contract, without any intention of deceiving the
other party. Consent to an agreements obtained by misrepresentation is not real and free.
Misrepresentation means and include;

1. When a person positively asserts that a fact is true when his information does not
warrant it to be so, though the believes it to be true.
2. When there is any breach of duty by a person which brings an advantage to the person
committing it by misleading another to his prejudice.
3. When a party causes, however innocently, the other party to the agreement to make a
mistake as to the substance of the thing which is the subject of the agreements.
REQUIREMENTS OF MISREPRESNTATION:
1. It must be a representation of a material fact
2. It must be made before the conclusion of the contract with a view to inducing the other
party to enter into the contract.
3. It must be made with the intention that it should be acted upon by the person to whom
it is addressed.
4. It must actually have been acted upon and must have induced the contract.
5. It must be wrong but the person who made it honestly believed it to be true.
6. It need not be made directly to the plaintiff.
EX: A told his wife within the hearing of their daughter that the bridegroom proposed for
her was a young man. The bridegroom, however,was over 60 years. The daughter gave
her consent to marry him believing the statement by her father.Held,the consent was
vitiated by misrepresentation and fraud>
Mistake
The term mistake is used in law of contract to mean-“improper understanding about the
agreement”. When an agreement is made with a mistake regarding terms and conditions
of agreement, there will be no consent between the parties. So the agreement becomes
totally void. The mistake can be reclassified into various types as follows.
I.MISTAKE OF LAW
A. Indian law.
B.Foregin law
II.MISTAKE OF FACTES
A. Bilateral mistake.
1. Subject matter
a.Existance.
b.Identity.
c.Quality.
d.Quantity.
e.Price.
2. Possibility of performance.
a. Physical possibility.
b.Legal possibility.
B.Unilaterl mistake
Legality of Object and Consideration

According to Sec 23 of ICA, an agreement of which the object or consideration is
unlawful is void. Object means purpose or design of the contract.
Both, the object and consideration of agreement must be lawful, otherwise, the agreement
would be void. The word “lawful” means “permitted by law”. Sec 23 of the contract Act,
speaks of 3 things;
1. Consideration for the agreement

2. Object for the agreement.
3. Agreement.
The consideration or the object of an agreement is unlawful in the following cases;
1. If it is forbidden by law.
2. If it is of such a nature that if permitted, it would defeat the provisions of any law.
3. If it is fraudulent.
4. If it is involves or implies injury to the person or property of another.
5. If the court regards it as immoral.
6. If the court regards it as being opposed to public policy.
1. It is forbidden by law; if the consideration or object for a promise is such as is

forbidden by law, the agreement is void. Te agreement is forbidden by law, if the
legislature penalizes if or prohibits it. It is illegal and cannot become void even if the
parties act, according to such agreement sec 26, 27, 28, and 30 of the contract Act deals
with cases where the consideration or object of an agreement is considered unlawful.
Ex; A promises to obtain for B, an employment in the public service and B promises to
pay 100/- to A. the agreement is void as the consideration for it is unlawful.
2. If it is a such a nature that if permitted, it would defeat provisions of any law. A

contract which seeks to exclude the application of a statutory provision to the parties is
not valid. An agreement to give an annual allowance to the parents of an adopted Hindu
boy in order to induce them to consent to the adoption is void.
Ex; A’s estate is sold for arrears of revenue under the provisions of an Act of the
legislature by which the defaulter is prohibited from purchasing the estate B, upon an
understanding with a, becomes the purchaser, and agrees to convey the estate to a upon
receiving from him, the price which B has paid. The agreement is void as it renders the
transaction, in effect, a purchase by the defaulter and would so defeat the object of the
law.
Mohan vs. Narain
3. If it is fraudulent; agreements which are entered into to promote fraud are void. Thus,
an agreement for the sale of goods for the purpose of smuggling them out of the country
is void and the price of the goods so sold, cannot be recovered.
Ex. A, B and C enter into an agreement for the division among them of gains acquired to
be acquired by them by fraud. The agreement is void as its object is unlawful
4. If it involves or implies injury to the person or property of another; the object

consideration of an agreement will be unlawful if it tends to injure the person or property
of another. Thus, an agreement to pull down another house in unlawful. The word injury
means ‘Criminal’ or wrongful harm loss which ensures to a trader as a result of
competition by a rival trader is not injury within the meaning of this clause.
5. If the court regards it as immoral ; where the consideration or object of an agreement

is such that the court regards it as immoral, the consideration is void. The word immoral a
means inconsistent with what is right. Rent due in respect of a flat let to a prostitute for
the purpose of her trade cannot be recovered. Similarly, money lent for the purpose of
assisting the borrower to visit both and bring in prostitute cannot be recorded in a court of
law.
Ex. P advanced money to D, a married woman to enable per to obtain a divorce from her
husband and P agreed to marry her as soon as she obtained a divorce. It was held that P
was not entitled to recover back the amount as the agreement had for its object the
divorce of D from her husband.
Bai Vijli(vs) Nansa Nagar 1885

If the court regards it as being opposed to public policy; an agreement is unlawful if the
court regards it as opposed to public policy. A contract which is opposed to public policy
cannot be enforced by either of the parties to it. Any agreement which tends to promote
corruption or injustice or is against the interest of the public is considered to be opposed

to public.
6. Agreements Opposed To Public Policy;

A. Trading with enemy
B.Stifling prosecutions
C.Maintenance and champerty
D.Traffic relating to public officers
E.Agreements tending to create interest opposed to duty
F.Marriage and brokage agreements
G.Agreements tending to create monopolies
H.Agreements to influence elections to public officers
I. Agreements in restraint of personal liberty
J.Agreements interfering with marital duties.
1. Trading with enemy. Trading with enemy is clearly against public policy in so far as
it helps the enemy to the detriment to the country. Besides it is against national honour to
indulge in such acts in times of national emergency. But, where a contract is made during
peace times and then war breaks out, one of the 2 things may result. Either the contract is
suspended or it stands dissolved depending upon the intention of the parties.
2. Stifling Prosecutions; it is in public interest that criminals should be prosecuted and

punished. Hence, an agreement to stifle a prosecution i.e., to prevent proceedings already
instituted from running their normal course or to compromise a prosecution is illegal and
void. It is not open to the parties to take the administration of justice out of the hands of
the authorities and themselves determine what should be done. Thus, a promote executed
as consideration for compounding of a compoundable offence is not void.
3. Maintenance and champerty ; Maintenance and champerty agreements are void as

being opposed to public policy. Maintenance may be defined as an agreement whereby a
person promises to maintain a suit in which he has no interest. Champerty is an
agreement whereby a person agrees to share the results of litigation.
Ex. G, an advocate entered into an agreement with his client which was embodied in his
client’s letter to him. The letter read, “I hereby engage you with regard to my claim
against the Baroda Theatres Ltd, for a sum of 9400/-. Out of the recoveries, you may take
fifty percent of the amount received. The Supreme Court held that a contract of this kind
was highly objectionable for a lawyer and void.
4. Traffic relating to public officers: Agreement concerning the sales of public officers
is bad as they promote corruption. Sec 6(7) of the transfer of property act provides that a
public office cannot be transferred nor can the salary of a public officer.
Ex. A paid B, a public servant, a certain amount inducing him to retire from service, thus,
is paving the way for A to be appointed in his place. The agreement was held to be void.
Venkataramana(Vs) J.M. Lobo (1923)
5. Agreements tending to create interest opposed to duty; an agreement which tends to

create an interest in favour of a person which would conflict with his duty is illegal on the
ground that it is opposed to public policy. It is the essence of public policy that a servant
must not be deterred from doing his duty. Thus, an agreement by a person is govt. service
for the purchase of land situated within his circle is illegal as opposed to public policy.
6. Marriage or brokerage agreements; a marriage or brocage agreements is an

agreement whereby a person promises for reward to procure the marriage of another.
Such agreements are void being against public policy. Thus, if A pay B, a stranger, a
certain sum of money to procure a wife for him, he cannot enforce the agreement as it is
clearly against public policy.
7. Agreements tending to create monopolies; an agreement to create monopoly is void

as opposed to public policy. There can be monopoly right given to one person to the
exclusion of others, in matter like selling of vegetables.
8. Agreements to influence elections to public officers: Any agreement with voters

tending to influence them by improper means and agreement with third persons to
influence voters by indirect means are all invalid. Similarly, an agreement between rival
candidates that one shall withdraw in consideration of a promise by the other to appoint
him to office is void.
Ex; A promises B, the owner of a newspaper, 500/- in consideration of the publication by
B, in his news paper of false statements in regard to a candidate for election, B published
them, the agreement is void as opposed to public policy.
Ex. A borrowed money from a money lender and agreed that he would not without the
lenders written consent, leave his job, or borrow money, dispose of his property or move
from house. It was held that the contract was illegal as it unduly restricted the liberty of
A.
Horwood (vs) Millars Timber and Trading Co.
9. Agreements interfering with marital duties; Agreements which interference with the
performance of marital duties are void, as being opposed to public policy. Thus, an
agreement to lend money to a woman in consideration of her getting a divorce and
marrying the lender is void.
Performance of contract
Performance of a contract takes place when the parties to the contract fulfill their
obligation arising under the contract within the time and in the manner prescribed.
Performance of a contract means “fulfillment of the legal obligations created by a
contract”. When a contract is duly performed by both the parties, that contract comes to
an end. Section 37 of the Indian Contract Act deals lays down that “the parties to a
contract must either perform or offer to perform their respective promises, unless such
performances is dispensed with or executed under the provisions of law.
Contracts which need not be performed:

Sections 62 and 67 of the Contract Act deals with contracts which need not be
performed. The relevant provisions are as under:
1. If the parties to a contract agree to novation, rescission or alteration, the original
contract need not be performed.
2. The promise may dispense with or remit performance by the promisor in whole or
in part or may extend the time for the performance or may accept any satisfaction
in lieu thereof.
3. When a voidable contract is rescinded (cancel), the other party need not perform
his promise
4. Where the failure of performance has been cause by the promisee’s neglect or
refusal, the promisor will be excused.
Offer of performance or Tender:

• Sometimes it so happens that the promisor offers to perform his obligations under
the contract at the proper time and place but the promisee does not accept the
performance. This is know as “attempted performance” or “tender". section 38
sums up the position in this regard thus: where a promisor has made an offer of
performacne to the promisee, and the offer has not been accepted, the promisor is
not responsible for non-performance. Thus, a tender of performance is equivalent
to actual performance. It excuses the promisor from the further performance and
entitles him to sue the promisee for the breach of contract.
• “an offer to perform one’s obligations under a contract is called ‘tender’.
Essentials of valid tender
1. It must be unconditional: it becomes conditional when it is not accordance with
the terms of the contract.
Ex: D, a debtor offers to pay to C, his creditor, the amount due to him on the
condition that C sells to him certain shares at cost. This is not a valid tender.
2. It must be made at proper time and place: when a contract provides that tender
should be made at a particular place and time, it should be so done. Ex: A owes B
Rs 10,000 payable on 1st June with interest. B offers to pay on 1st May the amount
with interest up to 1st May. It is not a valid tender as it is made at the appointed
time.
3. The tender must be whole and not of the part. A tender of an installment when the
contract stipulates payment in full is not valid tender.
4. It must be made to the proper person:
5. In case of tender of goods: it must give a reasonable opportunity to the promisee
for inspection of the goods. A tender of goods at such time when the other party
cannot inspect the goods is not a valid tender.
6. Exact amount should be tendered: in case of tender of money, exact amount
should be tendered in the legal tender money. Tendering a larger or smaller
amount
By whom must contracts be performed?
1. Promisor himself: (AR Rahman promises to perform a musical night for KL
MBA students, the promise must be performed by himself)
2. Agent: where personal skills are not necessary
3. Legal representatives: in case of death of the promisor before performance
4. By third party: if the promisee accepts performance of the promise from a third
party, there is a discharge of the contract.
Reciprocal promises
Promises which form the consideration or part of the consideration for each other
are called “ reciprocal promises”. In a reciprocal promise each party is not only a
promisor but also a promisee at the same time. Most of the promises are
reciprocal.
For ex: A promises to do or not to do something in consideration of Bs promise to
do or not to do something, the promises are reciprocal.
Rules regarding performance of reciprocal promises:
1. Simultaneous reciprocal promises : where tow promises are to be performed
simultaneously, they are know as mutual and concurrent. When a contract
consists of reciprocal promises
2. Order of performance of reciprocal promises: where the order in which
reciprocal promises are to be performed is expressly fixed by the contract, they
must be performed in ;that order and where the order is not expressly fixed by the
contract, they must be performed in that order which the nature of the transaction
requires. Ex: A and B contract that A shall build a house for B at a fixed price.
A’s promise to build the house must be formed before B’s promise to pay for it.
3. Effect of one party preventing another from performing promise:
when a contract contains reciprocal promises, it may happen that one party to the
contract prevents the other form performing his promise. In such a case, the
contract becomes voidable at the option of the party so prevented.
4. Effect of default as to promise to be performed first: when the nature of

reciprocal promises is such that one of them cannot be performed till the other
party has performed his promise then if the other party fails to perform it, he
cannot claim the performance of the reciprocal promise from the first party.
Ex: A hires B’s ship to take in and convey, from Kolkatta to China, a cargo to be
provided by A. B receiving a certain freight for it conveyance. A does not provide
any cargo for the ship. A cannot claim the performance of B’s promise, and must
make compensation to B for the loss which B sustains by the non-performance of
the contract.
Discharge of contract
Discharge of contract : a contract creates rights and obligations. Discharge of contract

means termination of the contractual relationship between the parties. A contract is said
to be discharged when it ceases to operate i.e, when the rights and obligations created by
it come to an end.
Modes of discharge:
1. Discharge by performance
2. Discharge by agreement
3. Discharge by lapse of time
4. By impossibility
5. By operation of law
6. By breach of contract
1. Discharge by performance: this is the one of the most usual ways of discharge
of contract. Performance means the doing of that which is required by a contract.
Discharge by performance takes place when the parties to the contract fulfil their
obligations.
Performance may be 1.Acutal performance and 2. attempted performance
Actual performance: when both the parties perform their promises, the contract
is discharged. Performance should be complete, precise and according to the
terms of the agreement. Most of the contracts are discharged by performance in
this manner.
Attempted performance or tender: tender is not actual performance but is only an
offer to perform the obligation under the contract. Where the promisor offers to
perform his obligation, but the promisee refuses to accept the performance, tender
is equivalent to actual performance.
2. Discharge by agreement: contract is the result of an agreement between two or
more parties. In the similar manner parties may agree to terminate the contract.
The parties may agree to terminate the existence of the contract by any of the
following ways:
a) Novation: substitution of a new contract in place of the old existing contract is

known as ‘Novation of contract’
b) Alteration: it means change in one or more of the terms of the contract. In case
of novation there may be a change of the parties, while in the case of Alteration,
the parties remain the same.
C) Recession: recession means “cancellation”. All or some of the terms of
contract may be cancelled. Recession results in the discharge of contract.
d) Remission : remission means acceptance of a lesser performance that what is
actually under the contract.
e) wavier: waiver means giving up or foregoing certain rights. When a party
agrees to give up its rights, the contract is discharged.
3. Discharge by lapse of time
Every contract must be performed within the stipulated period or within a
reasonable time of contract. Lapse of time discharges of contract. The Indian
limitation Act, 1963 has prescribed the period within which the existing rights can
be enforced in court of law. In the case of simple contracts, the period of
limitation is three years.
4. Discharge by Impossibility of performance
A contract to be valid must be capable of being performed. if it contains an
undertaking to perform an impossibility, it is void . Law does not compel people
to do impossible things. An agreement to do an impossible act in itself is void.
1. impossibility existing at the time of agreement. (a) know to the parties: eg: A
agrees with B to discover treasure by magic
(b) unknown to the parties: at the time of making contract both the parties are
ignorant of the impossibility as the subject matter is destroyed. the contract is void
5. Discharge by operation of law

A contract may be discharged independently of the wishes of the parties. i.e by
operation of law. This includes
a) by death
b) by insolvency
C) by unauthorized alteration of the terms of a written agreement
d) merger: merger takes place when an inferior right accruing to a party under a
contract merges into a superior right accruing to the same party under the same or
some other contract. E.g.: P holds a property under a lease. He later buys the
property. His rights as a lessee merge into his rights as owner.
7. Breach of contract
Breach of contract means a breaking of the obligation which a contract imposes. it
is a failure of a party to perform his obligations. It occurs when a party to the
contract without any lawful excuse does not fulfill his contractual obligation.
Breach may be 1. Actual breach of contract 2.Anticipatary breach of contract
Actual breach of contract: At the time when the performance is due: actual breach
of contract occurs, when at the time when the performance is due, one party fails
or refuses to perform his obligations under the contract.
Anticipatory breach of contract: it occurs when a party to an executory contract
declares his intention of not performing the contract before the performance is
due.
Quasi contracts
A contract is the result of an agreement enforceable by law. It comes into existence from
the action of the parties. The parties make actual promises knowing fully well that legal
relationship will come into existence. But sometimes there is no intention on the part of
the parties to enter into a contract but obligations resembling those created by a contract
are imposed by law. Such obligations imposed by law constitute what is know as quasi-
contracts. A quasi-contract is not in fact a contract at all, but merely resembles one and
produces similar effect.
Example: If A pays a sum of money to B believing him to be his creditor, when as a
matter of fact he was not, B is bound to return the money to A on the assumption that the
above sum given to him was by way of loan.
“a situation in which law imposes upon one person on grounds of natural justice, an
obligation similar to that which arises from a true contract, although no contract express
or implied, has in fact been entered into by them”
• The basis of quasi-contract is to prevent unjust enrichment or unjust benefit, i.e no
man should grow rich out of another person’s loss. The Indian Contract Act,1872
recognizes such types of contracts and sections 68-72 deal with such contracts.
They are as follows:
• Kinds of Quasi-Contracts / types
1. claims for necessaries supplied:
where necessaries are supplied to a person, incapable of entering into a contract, or
anyone to whom he is legally bound to support, the supplier is entitled to recover the
price from the property of the incompetent person under section 68 of the Contract Act.
E.g A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled
to be reimbursed from Bs property.
2. Payment by an interested person: section 69 provides that a person who is interested
in the payment of money which another is bound to pay, and who therefore, pays it, is
entitled to be reimbursed by the other.
Case law: Hazari lal vs Nawrangalal
in this case, B holds land in Bengal on a lease granted by A, the Zamindar. The
Zamindar has not paid the land revenue to the Government. So the land is advertised for
sale by the Government. Under revenue law, the consequences of such a sale will be the
termination of B’s lease. B, to prevent the sale and to protect his own lease, pays to the
Government the amount due by A. A is bound to make good to B, the amount so paid.
3.Obligation to pay for non-gratuitous acts: sec 70
when a person lawfully does anything for another person or delivers anything to him,
not intending to do so gratuitously, and such other person enjoys the benefits thereof, the
latter is bound to make compensation to the former in respect of , or, restore , the thing so
done or delivered. Eg: A, a tradesman, leaves goods at B’s house by mistake. B treats the
goods as his own. He is bound to pay for them to A
4. Responsibility of finder of goods : (sec 71)
A person who finds goods belonging to another and stakes them into his custody, is
subject to the same responsibility as bailee. He is bound to take as much care of the
goods. He must also take necessary measures to tract its real owner. if he does not, he
will be guilty of wrongful conversion of the property.
case law : Hollins Vs Fowler: H picked up a diamond on the floor of K’s shop and
handed it to F to keep it till the true owner appeared. Inspite of best efforts the true owner
could not be traced. After sometime H tendered to F to hand over the diamond to him
(H). F refused. It was held that F must return the diamond to H as H was entitled to retain
it.
The finder can sell the goods in the following cases :
a) perishing of goods
b) when the owner cannot, with reasonable diligence, be found out
c) when the owner is found out, but he refuses to pay the lawful charges of the finder
5. Money paid by mistake or under coercion: a person to whom money has been paid
or anything delivered by mistake or under coercion, must repay or return it. Eg. A and B
jointly owe Rs 1000 to C. A alone paid the amount to C and B not knowing of this fact,
paid Rs 1000 to C. C is bound to repay the amount to B.
Guarantee and indemnity
Indemnity contract : a contract of indemnity is a contingent contract. It is entered into

with the object of protecting the promisee against anticipated loss. Section 124 of the
Indian Contract Act defines a contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor himself, or by the conduct of any
other person”. The person who promises to make good the loss is called the “indemnifier’
(promisor) and the person whose loss is to be made good is called “indemnified”
(indemnity holder) (promisee). A contract of indeminty is really a class of contingent
contract.
Eg. A contract of Fire insurance and marine insurance is always contracts of indemnity.
But there is no contract of indemnity in the case of contract of life insurance.
Rights of Indemnity holder

Section 125 deals with rights of indemnity holder.
a) Rights to recover damages: indemnity holder is entitled to recover all damages

which may be compelled to pay in any suit in respect of any matter covered by
the contract
b) Right to recover damages: indemnity holder can recover such cost only if he
had acted prudently and did not contravene the orders of the indemnifier
c) all sums which he may have paid under the terms of any compromise of any
suit, provided such compromise is not contrary to the orders of the promisor and
was one which it would have been prudent for the indemnity holder to make
Contract of Guarantee
According to section 126, a contract of a guarantee is a contract to perform the promise
or to discharge the liability of a third person in case of his default. A contract of
guarantee involves three parties , the creditor, the surety and the principal debtor. The
person who gives the guarantee is called ‘Surety’ the person in respect of whose default
the guarantee is given is called ‘principal debtor’ and the person to whom the guarantee is
given is called the ‘creditor’.
‘guarantee’ is a promise to pay a debt owing by a third person in case the latter does not
pay.in order to create a contract of guarantee, there must be a creditor, a principal debtor
and a guarantor (surety)
Essential of a valid guarantee contract

• Concurrence (agreement)
• Existence of a principal debtor
• Consideration for a contract of guarantee
• May be oral or written
• There should be no misrepresentation
• Essential of valid contract
• The liability of the surety is not primary. It is collateral or secondary

Difference between indemnity and guarantee contracts

Indemnity Guarantee
1. There are two parties to the contract ie 1. Three parties. Creditor, principal debtor
indemnifier and indemnified and surety
2. The liability of indemnifier is primary 2. The liability of the surety to the creditor
and independent is secondary
3. There is only one contract ie between the 3. a contract of guarantee, there are three
indemnifier and indemnified contract : one between principal debtor and
creditor, second between creditor and the
4. The liability of the indemnifier arises surety and third between surety and the
only on the happening of a contingency principal debtor
No request 4 there is usually an exiting debt or duty,
the performance of which is guaranteed by
the surety
Surety gives guarantee only at the request

of the debtor.
Nature of surety’s liability

Section 128 of the Indian contract Act defines the nature and extent of surety’s
liability. It provides that liability of the surety is co-extensive with that of the
principal debtor. The term co-extensive with that of the principal debtor shows the
quantum of the surety’s liability. The surety is liable for what the principal debtor
is liable. The liability of the surety arise immediately on the default of the debtor.
Notice of default is not necessary to bring an action against the surety. Where the
liability is to arise only on the happening of a contingency, the surety is not liable
until that contingency has acutely happened.
Right of surety
• Surety is a person who guaranteed the due discharge or performance of an
obligation outstanding against third person. A contract of guarantee confers
certain rights and obligations on the surety. A surety has rights against
• I the creditor II the principal debtor III the co-sureties
I Rights against principal debtor:

a. rights of subrogation: soon after making a payment and discharging the liability of
the principal debtor, the surety is clothed with all the rights of the creditor which he can
himself exercise against the principal debtor.
b. right to claim indemnity (sec 141) as between the surety and the principal debtor there
is an implied promise to indemnify the surety. Under sec 145 the surety is entitled to
recover from the principal debtor whatever sum he has rightfully paid under the
guarantee. The surety can recover from the principal debtor not only the actual amount he
has paid to the creditor , but also interest thereon.
II Rights of the surety against the creditor:
a. Before payment of the guaranteed debt: a surety may, after the guaranteed bet has
become due and before he is called upon to pay, require the creditor to sue the
principal debtor. However, the surety will have to indemnify the creditor for any
expenses or loss resulting there from.
b. Right to set-off: the surety is also entitled to the benefit of any set-off or counter
claim which the principal debtor might possess against the creditor in respect of
the same transaction. For eg. If the creditor owed some money to the debtor, the
latter would certainly put forth his right of set-off against the creditor. The same
right of the debtor would be available to the surety.
III Right against co-sureties : it would be unfair if one co-surety is compelled to pay
the entire debt of the principal debtor. In such cases, the surety can claim contribution for
the excess amount paid by him. Equality of burden is the basis of co-surety ship.
Bailment and surety
The term Bailment is derived from a French word ‘bailior’ which means to deliver. It
denotes a contract resulting from delivery. In law it is used in technical sense, it involves
change of possession and not transfer of ownership, section 148 of the Contract Act
defines bailment as “the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person delivering them”. The
person who delivers the good is called the ‘bailor’, the peson to whom goods are
delivered is called ‘bailee’
Eg of bailment : A lends his motor cycle to B for his use
student borrowed a book from library
Essential characteristics of bailment
1.Delivery of goods
2. Delivery of goods must be some purpose
3. Contract: bailment is based upon a contract between the parties. In exceptional
cases, it can also be implied by law. In case of finder of goods, bailment implied
by law.
4.Return of goods
5.Movable
6. Movable goods
7. Possession only but not ownership
Kinds of bailment
Voluntary and involuntary bailment: voluntary bailment is an outcome of expression and

involuntary bailment arises by the operation of law (finder of lost goods)
Gratuitous and non-gratutious bailment:
a bailment without any reward or consideration is called ‘gratuitous bailement’.
Eg. A gives a watch to his friend B freely. It is a gratutious.
If a watch is given to repair . It is a non-gratutious bailment.
Rights and duties of bailor
1.Right to terminate the bailment

2. Enforcement of bailee’s duties
3.right to demand return of goods
4.right to claim the increase or profit from goods bailed
5.Right against the third party: if a third party wrongfully deprives the bailee of the use
or posession of goods bailed, or does any injury, the bailor may bring a suit against the
third person for such deprivation or injury. This right is available to the bailee also.l
Duties of bailor
1.Duty to disclose faults in the goods bailed

Eg: A lends a horse, which he knows to be ferocious to B. He does not disclose the fact
that the horse is ferocious. The horse runs away. B is thrown and injured. A is responsible
to B for damages sustained.
2.To bear extra-ordinary expense
3.To indemnify bailee
Rights and duties of bailee
Rights of bailee:
1. enforcement of bailor’s durites
2.Right to compensation
3. Right to remuneration
4.Right to claim damages
5.Right of lien
6. Right of third person claiming goods bailed
Duties of bailee
1. duty to take reasonable care
2.duty not to use unauthorized use of goods
3,duty no to mix bailor’s goods with his own goods
4. not to set up any adverse title against bailor
5.to return goods bailed
Lien
• Lien means the right of a person to retain possession of some goods belonging to
another until some debt or claim of the person in possession is satisfied. A lien
can be (1) particular lien (2) general lien
• Particular : a particular lien is one which is available to the bailee against only
those goods in respect of which he has rendered some service involving the
exercise of labour or skill . Eg: goods bailed to tailor
• General :a general lien is a right to retain all the goods of another until all the
claims of the holder are satisfied.
• Eg: bankers can exercise general lien
Finder of lost goods
Finder of lost goods is a person who finds goods belonging to another and take
them into his custody. Section 71 of the contract act lays down that “ a person
finds goods belonging to another and takes them into his custody is subject to the
same responsibility as a bailee”
Obligation of finder of lost goods:
1. to take reasonable care of goods
2. not to mix the goods with his own
3.find the true owner
4. not to use for his personal

5. to return any increase in goods
Rights of finder of lost goods:
1. right of lien : until recovers expense
2. right to sell

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Indian contract act 1872

1. ESSENTIAL ELEMENTS OF A VALID CONTRACT

AGREEMENT = OFFER + ACCEPTANCE

CONTRACT =AGREEMENT+ENFORCEABILITY AT LAW

3. Legal obligation; an agreement, to become a valid contract, it should end in legal

BALFOWR (Vs) BALFOUR - 1919

Essential Elements of a Valid Contract:

5. Competency of parties: The parties to the agreement must be competent to contract. If

7. Law full consideration; All contracts must be supported by consideration. Gratuitous

1. Voidable Contract: An agreement which is enforceable by law at the option of one or

3. Unenforceable Contract: A contract which cannot be enforced is a valid contract in

8. Quasi-Contract: Certain relations resemble those created by a contract. Certain

9. Contingent Contract: A contingent is one in which a promise is conditional and the

11. Specialty Contract: A specialty contract is a contract which is in writing signed,

Distinction between Voidable Contract and Void Contract:

How an offer is made;

To Whom an Offer can be Made:-

CARILL (vs.) CAR BOLIC SMOKE BALL Co. (1893)

Facts- A Carbolic Co advertised in a news paper, a reward of 100/- to anyone who

Essentials of a valid offer;

3. Offer must be communicated to the offeree; There can be no offer by a person to

5. Special terms or conditions in an offer must also be communicated:

CASE-PARKER (vs.) SOUTH EASTERN RAILWAY CO (1877)

7. Lapse of an offer: - An offer lapses:

8. An invitation to offer is not an offer: An offer must be distinguished from an

9. Cross offers counter offers:

10. Offer may be expressed or implied.

Modes of revocation of offer:-

A. By notice of revocation: offer may be revoked by a communication of a

writing may be revoked by words of mouth. The notice of revocation may

B. By lapse of time: A proposal will come to an end by the lapse of time

C. By non-fullment of condition precedent; A proposal is revoked when the

D. By death or insanity; A proposal is revoked by the death or insanity of

E. By counter offer; An offer comes to an end when the offeree makes a

F. By the non-acceptance of the offer according to the prescribed or

G. By subsequent illegality: An offer lapses if it becomes illegal after it is

case law : Hyde Vs Wrench ( H offered to sell his property to W $1000.W

Essentials of valid consideration:

3. Consideration may be past present or future: consideration may be past, present or

Future consideration; A future or executary consideration is a promise to do or give

4. It need not be adequate; It is no where laid down that consideration should be

5. Consideration must be real: Though consideration need not be adequate, if it must be

6. Consideration must be lawful; the consideration for an agreement must be lawful. An

7. It must be something which the promissory is not already bound to do:

8. There should be one consideration for one agreement.

9. Consideration is very essential in every contract:

Consideration is a very important feature in every contract. A promise cannot become an

10. Consideration may be any form:

Q) “A stranger is consideration can sue, but a stranger to contract

2. Where the provision is made in a marriage settlement. Where an agreement is

3. Where a provision is made in a partition or family arrangement for maintenance,

Case Daropti vs. Jaspat Rai 1905

Case Shuppuammal vs. Subramanyam 1910

4. Where a charge is created in favour of a stranger on a specific immovable property,

6. Contract entered into by an agent can be enforced by the principal.

Q) “No consideration- No contract” – explain and give exceptions

According to the meaning and definition of consideration, whenever a party promises to

3. Completed Gifts; no consideration – No contracts shall not affect validity on any

Capacity of Parties – Minor

According to sec 11, the following persons are incompetent to contract

Contracts entered into by persons mentioned above are void.

Rules regarding minor’s agreement;