The Contract Act 1872

Sem II
Index

 Definitions
 Classifications of Contracts
 Essential Elements of a Valid Contract
 Discharge of a Contract
 Contingent contracts
Definitions
 When one person signifies to another his willingness to do or
to abstain from doing anything, with a view to obtaining the
assent of that other to such act or abstinence, he is said to
make a PROPOSAL or OFFER

 A proposal, when accepted, becomes a PROMISE of the

offerer

 When a person to whom the proposal is made, signifies his

assent thereto, the PROPOSAL is said to be ACCEPTED

 The person making the proposal is called the "PROMISOR",

and the person accepting the proposal is called "PROMISEE”
Definitions
 When, at the desire of the promisor, the promisee or
any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to
abstain from doing, something, such act or abstinence
or promise is called a CONSIDERATION for the
promise;

 Every promise and every set of promises, forming the

consideration for each other, is an AGREEMENT;

 Promises which form the consideration or part of the

consideration for each other are called RECIPROCAL
PROMISES
Definitions
PAST
Consideration
 When, at thePRESENTdesire of the promisor, the
FUTURE
Consideration Consideration
promisee or any other person has done or
abstained from doing, or does or abstains from
doing, or promises to do or to abstain from
doing, something, such act or abstinence or
promise is called a CONSIDERATION for the
promise;

 Every promise and every set of promises,

forming the consideration for each other, is an
AGREEMENT;
Definitions

 An agreement enforceable by law is a

CONTRACT

 Therefore CONTRACT = Agreement +

Enforceability by Law.

 AGREEMENT = Offer + Acceptance +

Enforceability by Law
 Classifications of Contracts - An
agreement becomes a contract when all the essential elements of a contract
are present. In such E.g.,
case agreement
such agreement becomes
with minor or anaagreement
contract. Ifwithout
any of the
essential elements are missing consideration
then such contact is voidable, void, illegal or
is void-ab-initio
 BASED ON THE
unenforceable VALIDITY:
.
 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”.

VOID AGREEMENT: AnEx: Mr. B borrows Rs.5,000 by from

law isMr.
saidA to
andbe enters
void.” into a

 agreement not enforceable A void
contract
agreement does not create with
any legal rightan alien to import
or obligation. prohibited
Such agreement goods. Mr.from
is void-ab-initio A
the beginning itself. knows of the purposes of agreement. The transaction
between Mr. B and Mr. A is collateral to the main
VOID CONTRACT: A contract which It
agreement. ceases to be
is illegal enforceable by agreement
law becomes isvoid when it
the since

ceases to be enforceable.” In this case when
the
contract
main
was entered into, may beillegal.
valid and
binding on the parties as per law, but subsequently it has become void. E.g., in the case of
import contract, the agreement is enforceable, but if subsequently war brakes out then the
agreement becomes void contract.

 ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic
rule of Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID,
BUT ALL VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between
the immediate parties but has its further effect that even the collateral transactions to it
become tinted with illegality. A collateral transaction is one, which is subsidiary, incidental or
auxiliary to the principal contract.

 UNENFORCEABLE CONTRACT: An unenforceable contract is one which cannot be enforced in

a court of law because of some technical defect such as absence of consideration or absence of
contract in writing. The parties to the contract may fulfill their obligations but in the event of
breach of contract the other party cannot enforce it.
Classifications of Contracts
Case Law: a fire broke out in S’s firm. He called upon the
upton fire brigade to put out the fire which the latter did. Mr. S
firm did not come under the free service zone although he
 believes
BASED ON to be so. Held, he was liable to pay for the service
FORMATION:
rendered, since the services was rendered on the implied
promise to pay (Upton Rural District Council vs. Powell)
 Express contracts: If the terms of the contract are expressly
agreed upon (whether by words
Example –Trader spoken orgoods
leaves the written) atAthe
at Mr. timeby
‘s house
of formation of contract.
mistake. Mr. A treats the goods as his own. Mr. A is
bound to pay for the goods.
 Implied contracts: in this case the contract comes into
existence by the acts or conducts of the parties -E.g.,
Getting into a Public bus.

 Quasi contract: strictly speaking quasi contracts are not

contracts. A contract is one, which is entering into with the
consent of the parties to the contract. A quasi contract is
one, which is created by law. It is based on the principle
that “a person shall not be allowed to enrich himself unjustly at
the expense of another.”
Classifications of Contracts
Example –Mr. A entered into a contract with the porter
for lifting his 5 bags. Porter agreed and lifts all the 5
bags for Rs. 100. So here the porter has lifted the bags
and Mr. A has paid him.
 BASED ON PERFORMANCE:
Example –Mr. A entered into a contract with the porter
 for lifting
Executed Contract: his 5 bags.
A contract Porter agreed
in which to lift
both the all theto
parties 5 bags
the
for Rs. 100. So here the porter has not lifted the bags
contract have completely
and Mr. A has performed their share of obligation
not paid him.
and nothing remains to be done by either of the parties

 Executory Contract: A contract in which both the parties or

any one party to the contract has to still perform their share of
obligation

 Unilateral Contract – where any one party to the contract has to still
perform their share of obligation

 Bilateral Contract - where any both the parties to the contract has to
still perform their share of obligation
Essential Elements of a Valid
Contract
All agreements are contracts if they are made with:
 Offer and Acceptance
 Intention to create a legal relationship
 Lawful Consideration
 Capacity of the Parties
 Free Consent
 Lawful Object
 Certainty and Possibility of Performance
 Legal formalities
If any of the above is missing, the contract becomes void.
Essential Elements of a Valid
E.g., Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.
Contract - Offer and Acceptance
 There must be minimum two parties to an
agreement.
 I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
 the other accepting it (also called as
offeree/proposee/promisee/acceptor)

 The terms of offer must be definite

 Acceptance must be unconditional.

Essential Elements of a Valid
Contract – Offer – Meaning:
A person is said to have made a
proposal/offer,
 when he signifies to another his
willingness
 to do or to abstain from doing anything,
 with a view to obtaining the assent of
that other to such act or abstinence
Offer - Kinds of offer:
E.g., When A says to B, “Will you purchase my house
at Chennai for Rs. 3 lakhs. .
E.g., When a transport company runs a bus on a particular
route, there is an implied offer by the transport co. to carry
passengers for a certain fare. The acceptance of the offer
 Expressed offer - When offer is made by express spoken or
is complete as soon as a passenger boards the bus.
written words

 Implied offer - An offer may also be implied from the

E.g., If Mr. A asks to B, for his blue car for Rs.
conduct of the2,00,000/-,
parties orMr. the circumstances
C cannot of the case. 
accept the offer.

 Specific offer - When an offer is made to a definite person,

it is said to be Specific Offer. It can be accepted by the
person to whom it is made.

 General offer – When an offer is made to the world at large

Case Law: A hotel put a notice in a bed room, exempting the proprietor from liability
Legal rules to offer
for lossCase
knowledge
of Law:
missing
Lalmann
client’s E.g.,
of thenephew.
Mr.v/s
goods.
purchase
A Gauri
has 3the
Held,
Subsequently
client onlymy
Dutt-
cars.
car for
when theRs.
E.g.
He asked
notice G sent
was
G announced
2 lakhs.
contract
Mr.
hiseffective
not
to The
take
Bservant
“are you
aoffer
rewardis not
a room
L
asin
for
ready
had
itsearch
to oftohis
came
definite.
information
already been
the
The offer must be given with an intention to create legal relationship - A social invitation

entered concerning
eveninto.
the boy. L brought back the missing boy, without the knowledge
if it is accepted, does not create a legal relationship because it is not intended so.
of reward. It was held that there was no contract between L & G and the
P deposited
The terms a ofbag
thein themust
offer cloakbereward
room cannot
of
definite: the beofclaimed.
a railway
terms station.
the Onbethe
offer must faceand
definite of certain
the ticket,
and
must not be ambiguous or vague.  
issued to him, was written “see back”. One of the printed conditions limited the
liability
 of must
Offer the company for lossanofoffer
be communicated: a package to Rs.10/-
to be complete The bag was
must be communicated lost
to the andtoP
person
whom the offer is made. Mere by acting to the terms of the offer without knowledge, the offer cannot
claimed Rs. 24.50/- as its value. Held, P was bound by the conditions on the back
be treated as accepted. An acceptance of offer in ignorance of offer is no acceptance and does not
of theconfer
ticketany even if he
right on the had not read.
acceptor.
 
 Offer may be conditional: When the offer is subject to conditions, they must be clearly
Eg: A offers to
communicated his
theblack kinetic
offeree. to B for
If the person Rs.the
accepts 20,000/- andthe
offer without tells him that
knowledge if Iconditions
of the
the offeror can’t claim the fulfillment of conditions. But the conditions are clearly expressed, then
don’t can
offeree here anything.
plead ignorance.From you within 15 days, I will assume that you
  have accepted my offer. This offer is not valid
 Offer must not contain a term that non-compliance of which may be assumed to amount
to acceptance: the person making the offer cannot say that if acceptance is not communicated by
a certain time, the offer would be considered as accepted

 statement of price is not an offer: a mere declaration of intention or a a mere statement of price
is not construed as an offer to sell.
Offer and other forms
 There is a clear difference between offer, invitation to offer or an
announcement:
An announcement: a declaration by a person that he intends to do something
gives no right of action to another. Such a declaration only means that an offer
will be made or invited in the future and not that an offer is made now. E.g.,
Auction sale, will, etc.
 
Eg: A invites tenders for the supply of 100 bricks. X, Y, and Z
An invitation to make offer: display of goods by the

Eg; a railway Co. invited tender for shopkeeper
certain Iron with a price
articles which
marked on it does not make an offer, but merely gives an invitation to is
submit the Tender. A accepts the tender given by X. There the
it might require over a year. W’s tender was accepted. He
public to make an offer tobinding
buy thecontract
goods between A and
at the price X
marked on it. E.g.,
supplied goods for some time. He refused to supply
quotations, catalogues, advertisements, prospectus issued by the company, at a later
etc. time. But the contract is binding on W

 Tender is an offer to the invitation of an offer. (public ad).

 Tender can be definite offer to supply specified goods and services.

 Tender can be standing offer.

Essential Elements of a Valid
Contract – Acceptance –
Meaning:
 When a person to whom
 the proposal is made,
 signifies his assent thereto,
 the proposal is said to be accepted.

 A proposal, when accepted, becomes a

promise

 Acceptance may be implied or expressed. In

express acceptance, while that given by
conduct is termed as implied acceptance.
 Eg; A offers his car to B for Rs. 50,000/- B accepted the offer
and paid Rs. 49,000/- cash down and promised to pay balance
Legal rules to acceptance
of Rs. 1,000/- by tomorrow. This is no acceptance
Case Law: on 08th June, Mr. M offered to take shares in R Co. He received a
letter of acceptance
Eg: a from R an
makes Co.offer
on November
to B and 23. He
says “ if refuses
you accept to take
the the shares.
offer
 Unconditional
Held, Mr. M, was- An acceptance
entitled in order to
to refuse, be
asthehisbinding
offerbymustlapsed
has be absolute/complete
as the and
reasonable
Case Law: Lalmann
unconditional. reply by wire.
v/s Gauri
The acceptance B sends
mustDutt
be to- all
G sent reply
termshis post. It is not a valid
servant L in search of his
of offer.
period during which it could be accepted had elapsed
acceptance.a reward (Ramsgate Victoria Hotel
 missing nephew.
Communicated Subsequently
to the offeror G announced for information
Co., vs. Monteflore)

concerning
Must be giventhe boy. L brought
in the backmode
prescribed the missing
- if the boy, withoutisthe
acceptance notknowledge
according to
mode prescribed, or some usual or reasonable, there is no contract.
of reward. It was held that there was no contract between L & G and the
 Given in a reasonable time - if any time limit is specified, the acceptance must be
reward cannot be claimed.
given within that time. If no time limit is specified by the offeror, then it must be given
within a reasonable time and it depends on the facts of the case
 Must be given by the parties, to whom the offer is made - When an offer is
Company allotted the shares to a person who had not
made to a particular person, it can be accepted by him alone. If it is accepted by
applied
another person, there is no for them. Subsequently, when he applied for
valid acceptance
 Must be given beforeshares he lapses
the offer was unaware about previous allotment. Thus,
or withdrawn
 It cannot precede an offer previous allotment is void.
 Once the offer is rejected it cannot be accepted by the offeree, unless the

offeror renews the offer

 It cannot be implied for the silence - the acceptance of an offer cannot be implied
from the silence of the offeree, unless the offeree has, by his previous conduct
inducted that his silence means the acceptance.
Lapse or termination of offer
 I. By communicating the notice of revocation - Offeror can give notice
of revocation to offeree but before the acceptance is complete as against
him.
 e.g., At an auction sale, A makes the highest bid of B’s goods. He withdraws the bid
before the fall of the hammer. The offer has been revoked before its acceptance.

 II. Lapse of Time - If the time is fixed in the offer then offer revokes at a
fixed time is over, otherwise after the reasonable time.
 e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the
wool. Held, the offer had lapsed.

 III. By non-fulfillment by the offeree of a condition precedent to

acceptance
 E.g., S a seller agrees to sell certain goods subject to the condition that B, the
buyer, pays the agreed price before a certain date. S had sold the wool. If before
the date buyer did not pay then the offer is revoked.

 IV. By death or insanity of the offeror provided the offeree comes to

know it before acceptance. But If he accepts an offer in ignorance of the
death or insanity of the offeror, the acceptance is valid.
Lapse or termination of offer
 V. By counter offer - When offer is accepted with some modifications in the terms of the
offer, then it amounts to counter offer. By putting counter offer the original offer comes to
an end.
 E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you
ready to sell it to Rs. 8 lakhs. B’s question to A is a counter offer.
 E.g. An offeree agreed to accept half the quantity of goods offered by the offeror
on the terms and conditions as would have applied to the full contract. Held,
there was no contract as there was a counter offer to the offer.

 VI. If an offer is not accepted according to the prescribed or usual mode provided
the offeror gives notice to the offeree within a reasonable time that the acceptance is not
according to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to
have accepted the acceptance.

 VII. If the law is changed. An offer comes to an end if the law is changed so as to make
the contract contemplated by the offer illegal or incapable of performance.

 VIII. Destruction of subject matter: - ‘A’ offers ‘B’ his cow for Rs. 4500/- In the mean
time, the cow dies due to snake bite. The offer is lapsed.

 Rejection of offer: - An offeree may reject the offer. Once he does that he cannot
subsequently accept it.
 Rejection of the offer may be express or implied.
 Express Rejection: The offeree may reject the offer expressly, i.e., by words
written or spoken. This is effective only when notice of rejection reaches the
offeror.
 Implied Rejection: Rejection of the offer is implied by law- where the offeree
makes a counter-offer or where the offeree gives a conditional acceptance
Communication of Offer.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The
communication of the offer is complete when B receives the letter, i.e.,
on 12th July.

 The communication of a proposal is complete- when it comes to

the knowledge of the person to whom it is made.
E.g., in the above case, when B accepts A’s Proposal, by a letter sent by post on
13th instant. The letter reaches on 15th instant. The communication of acceptance
is complete, as against A, when the letter is posted, i.e., on 13th, as against B,
when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)

 The communication of an acceptance is complete –

 as against the Proposer, when it is put in a course of
transmission to him so at to be out of the power of the
acceptor;
 as against the acceptor, when it comes to the knowledge of
the Proposer
Revocation of Offer

Revocation means
 taking back or

 Withdrawal or

 cancellation.
 E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
Communication of Revocation of
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
Offer
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.
 The communication of a revocation is
complete -as against the person who makes it
(i.e. for the revoking party), when it is put into
a course of transmission to the person to
whom it is made, so as to be out of the power
of the person who makes it; (i.e. when the
letter of revocation is posted.)

 (For the opposite party) as against the person

to whom it is made, when it comes to his
knowledge (when the letter reaches him)
Time for Revocation of
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the
Proposals and Acceptance
letter is posted on the 1st of the month. Mr. B accepts the proposal by a
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.
 A proposal may be revoked at any time
before the communication of its
acceptance is complete as against the
Mr. A may revoke his offer at any time before Mr. B posts his letter of
proposer,
acceptance, i.e., 4th butbut not afterwards.
not afterwards
Mr. B may revoke his acceptance at any time before the letter of acceptance
reaches Mr. A, i.e., 6th, but not afterwards

 An acceptance may be revoked at any

time before the communication of the
acceptance is complete as against the
acceptor, but not afterwards.
Loss of letter of acceptance
in postal transit:
 Acceptance is complete as against the offeror
as soon as the letter of acceptance is posted.

 The contract is complete even if the letter of

acceptance goes astray or is lost through an
accident in the post.

 But in order to bind the offeror, it is important

that the letter of acceptance is correctly
addressed, adequately stamped and posted,

 Otherwise the acceptance is not complete

Revocation how made 

 A proposal is revoked –

 (1) by the communication of notice of revocation by the

Proposer to the other party;

 (2) by the lapse of the time prescribed in such proposal for

its acceptance, or, if no time is so prescribed, by the lapse
of a reasonable time, without communication of the
acceptance;

 (3) by the failure of the acceptor to fulfill a condition

precedent to acceptance; or

 (4) by the death or insanity of the Proposer, if the fact of

the death or insanity comes to the knowledge of the
acceptor before acceptance.
Essential Elements of a Valid
Contract – Consideration –
Meaning:
 When a party to an agreement
promises to do something,

 he must get something in return.

E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the
consideration is Rs.15000/- and for B’s promise the consideration is the car.

 This something in return is defined as

consideration.

 .
Legal Rules to Consideration

 Move at the desire or request of promisor - An act constituting consideration must have been done at the
desire or request of the promisor, if it is done at the desire of the third party or without the desire of the promisor
it will not be a good consideration.
E.g., A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
is
 now
It may about
moveto file the
from a suit and Aoragrees
Promisee now
any other to pay
Person a means
– This higherthat
rate of interest.
as long as there isB agrees for
a consideration
for a promise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if
not he
filing a suit.
is a party This
to the forbearance is a valid consideration.
contract

 It may consist of an Act or Abstinence (means not doing something)

 Consideration can be past, present or future -

 It need not be adequate - Consideration as said “something in return” and something this something in return
need not be equal in value to “Something given”. The law requires that the contract must be supported by
consideration and not the adequate consideration.

 Must be real & not illusionary - There is no real consideration in the following cases:
 Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s
promise is physically impossible to perform.
 Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn
promise to discharge A from the liability. This is legally impossible, because C cannot discharge A from the
debt due to B.
 Uncertain consideration: A engages B for doing certain work and promises to pay a “Reasonable some”.
CL: There was a promise to pay to the vakil an additional sum if the suit was
There is no recognized method of ascertaining the “Reasonable Some”. The promise is unenforceable due to
uncertainty.
successful. E.g.,
Held, thetopromise
supari kill someone. was void for the want of consideration. The vakil
 Should not be illegal - the consideration given for an agreement must not be unlawful. A consideration to the
was under
contract a pre-existing
must not contractual
be against Public Policy, obligation
Immoral and illegal to render the best of his services
 under
It mustthe
be original
somethingcontract.
which the (Ramachandra
promisor is not alreadyChintaman
bound to vs.
do: aKalu Raju)
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 the new
promise, since it adds nothing to the pre-existing legal or contractual obligation.
Exception to the rules of
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
consideration
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
 Where an agreement is expressed in writing and registered
under the law for the time being in force for the registration
of the documents and is made on account of natural law and
affection between parties standing to the near relation to each
other, it is enforceable even if there is no consideration
 Promise to pay a time-bared debt: A promise to pay a time-
bared debt by the debtor is enforceable provided it is made in
writing and signed by the person to be charged therewith or by
his agent. The debt must be such “of which the creditor might
have enforced payment but for the law for the limitation of
suits”
 Completed gifts
 Compensation for the past voluntary services
 Charitable subscription
Exception to the rules of
consideration
 Completed gifts –
 The rule No consideration, no contract does not apply to
completed gifts.
 In order to attract this exception there need not be natural
love and affection or nearness of relationship between
donor and donee. The gift must, however, be complete.
 Compensation for the past voluntary services - is
binding.
 E.g. P finds S’s purse and gives it to him. S promises to
give P Rs. 100/- This is a contract i.e., A promise, to
compensate, wholly or in part, a person, who has already
voluntarily done something for the promisor, is
enforceable, even though without consideration.
Exception to the rules of
consideration
 Contribution to Charity:
 A person to contribute to charity , though gratuitous, would be
enforceable, if on the faith of the promised subscription, the
promisee takes definite steps in furtherance of the object and
undertakes a liability, to the extent of liability incurred, not
exceeding the promised amount of subscription.

 E.g. The defendant had agreed to subscribe Rs. 100/- towards the
construction of a Town hall at Howrah. The plaintiff (secretary of
the town hall) on the faith of the promise entrusted the work to a
contractor and undertook liability to pay him. The defendant was
held liable. But where the promisee had done nothing on the
promise, a promised subscription is not legally recoverable.

 E.g. The defendant promised to subscribe Rs. 500/- to a fund

started for rebuilding a Mosque but no steps had been taken to
carry out the repairs. The defendant was held not liable and the
suit was dismissed.
Doctrine of Privity of Contract
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
 Meaning:
 #The
The general
contract provided
rule isthatthatP shall
onlynot
thesellparties
the tyresto
below the list
a contract can
price. Also, the contract provided that P shall, at time of resale, impose
asue and be
condition sued
on the upon
retailer thatthe
sale contract.
by retailer shall not be made below
 the list price.words, if a person is not a party to the contract
In other
(i.e., a stranger to contract), he cannot sue.
# P sold certain tyres to S. S resold certain tyres below the list price.
 It implies the mutuality of will and legal bonding
between the parties.
# In a suit instituted by D against S, the court held that such suit was
 It maintainable
not refers to since the there
relationship between
was no Privity of contractthe parties
between S andwho
have entered into a contract.
D.
 Stranger to Contract
A who is indebted V.his
to B, sells Stranger
property totoC.Consideration
C promises to pay off
the debt to B. When C fails to pay; B has no right to sue C, because he
is a stranger to contract.
Exceptions – favour
Beneficiary, in whose Stranger
a Trust of other to
interest in some
immovable property has been created can enforce it, even though
Contract has
he is not a party the (Madhu
to the Contract right toCo.sue
Trading V UOI). in

the
 Trust following
A husband orwas
who separated cases:
Charge from his wife executed a separation deed by
which he promised to pay to the Trustees all the expenses for her maintenance.
 Marriage
Held, the agreement Settlement,
created a trust in favourPartition andbe other
of his wife and could
enforceable by her (Gandy V. Gandy).
family arrangements; and
X receives money from Y for paying it to Z. X admits the receipt of that
such
agreements
amount to Z. Z can recover
due from y.
isthereduced
amount from X,toevenwriting.
though the money is

 Acknowledgement of liability; by past

A holder in due course is entitled to the amount on a Negotiable
performance
The Purchaser
Instrument, even thereof
of though
immovable
thereproperty who has notice
is no agreement thathim
between theand
owner
the of the
land is bound by certain conditions or covenants created by an agreement
maker/drawer.
 Assignment of
affecting the land, shall beabound
Contract
by such conditions, even though he is not a
party to the original agreement containing those conditions or covenants.
 Contracts entered into through an Agent

 Covenants running with land

Essential Elements of a Valid
Contract – Capacity To Contract–
Meaning
Every person is competent to contract who is of:
the age of majority according to the law to which he is subject,


 sound mind, and

 is not disqualified from contracting by any law to which he is
subject.

 Section 11 declares the following persons to be incompetent to

contract.
 Minors
 Persons of unsound mind
 Persons disqualified by any law for the time being in force.
 Idiot
 Lunatic with unsound mind
 Alien enemy
 Convicts
Minor - Meaning
 Minors: according to Section 3 of the Indian Majorities Act, 1875, a minor is
a person who has not completed eighteen years of age. In the following two
cases, he attains majority after twenty one years of age:

 Where a guardian of a minor’s person or property has been appointed

under the guardian and wards Act, 1890, or

 Where the superintendence of a minor’s property is assumed to be court

of wards.

 The rules governing minor’s agreements are based on two fundamental

rules:

 The first rule is that the law protects minors’ against their own
inexperience and against the possible improper designs of those more
experienced.

 The second rule is that, in pursuing the above object, the law should not
cause unnecessary hardship to person who deals with minors.
 Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for

Legal rules of Minors:

Case law:
settingM,
from N.mortgage.
Aged
a side
he paidHeld,
17, agreed
the mortgage,
Rs.200/- as advance
the mortgage
tothat
stating purchase a second
he was underage
andtherefore,
was void and,
hand
when he
agreedit was
to pay
scooter
executed the for Rs.5000/-
the balance
cancelled. Further the next day
the money
and collect lender requested
the scooter. When for hethe repayment
came with of
thethebalance
amount advanced
money tonext
the day, N told him
minor as part of the consideration for the mortgage was also not accepted (Mohiri
that he has changed his mind and
Bibi vs. offered toGhose)
Dharamodas return the advance. N cannot avoid the
contract,
 though with
An agreement M may,
minorif he likes.ab-inito:
is void- (Sharafat Ali v/s Noor Mohd)
He can
Case law:beM,a Promisee
A minor,orborrowed
a Beneficiary: incapacity
Rs.5000/- of minor
from to enter
L and into a contract
executed means
a Promissory
incapacity to bind him-self by a contract. There is nothing that debars him from being a
note in favour
beneficiary. of contract
Such L. aftermay
attaining theatmajority,
be enforced the option he executed
of the minor andanother Promissory
not the other party.
note
 in settlement
Minor cannot ratifyof his
the contract,
first note.on The second
attaining Promissory
majority: note iswhich
“Consideration voidpassed
for the
under
want earlier contract cannot
of consideration. (Indran be Rama
implied Swamy
into the contract which theChettiar)
v/s Anthiappa minor enter on attaining
the majority. Thus consideration given during the minority is no consideration. If it is necessary
a fresh contract may be entered into by the minor on attaining the majority provided it is
supported by a fresh consideration
 He can always plead minority: even if he has, by misrepresenting his age, induced the other
party to contract with him, he cannot be sued either in contract or in tort for fraud because if
the injured party were allowed to sue for fraud, it would be giving him an indirect means of
enforcing the void agreement.
 Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to
refund the loan not only that, even his mortgaged property cannot be made liable
Legal rules of Minors:
to pay the debt.

 If he has received any benefit under a void agreement,

he cannot be asked to compensate or pay for it: section
65 which provides for restitution in case of agreements
discovered to be void does not apply to the minor
 There can be no specific performance of the contract
with minor, since agreement with minor is void-ab-
inito: Can’t file a suit for specific non performance. But if a
contract is entered into on his behalf by his Parents /
guardian then the same can be enforced by or against the
minor provided the contract is (a) within the scope of the
authority of the Parent / guardian, and (b) for the benefit of
the minor.
 He cannot enter into a contract of Partnership: a minor
can be admitted as a beneficiary of Profits of a Partnership
firm already in existence, with the consent of all the existing
Partners. But he cannot be admitted as a Partner
 He can be an agent: an agent is merely connecting link
between Principal and third Party. The movement the Principal
and third party comes into contract with each other, the agent
drops out with any personal liability, hence a minor can act as
agent.
Legal rules for a Minor
 His Parents / guardian are / is not liable for the contracts of the
minor: the exemption to this rule is that where the minor act as an agent
of his Parent / guardian, the Parent / guardian shall be liable for his acts.

 He cannot be adjudged as an insolvent.

Case law: G, a minor, entered into a contract with R, a noted billiards player, to
pay him certain sum of money to learn the game and play matches with him during
hisHeworld
cannot beRa spent
shareholder in money
a Company.

tour. time and in making arrangements for billiards
matches. Held, G was liable to pay as the agreement was one for necessaries as

it He
wascan be member
in effect in a Trade
“for teaching, union: and
instructions A Person who attained
employment the reasonable
and was age of
14 years can be admitted as a member.
and for the benefit of the infant.” (Robarts v/s Gray)
 Minor’s liability for necessaries: a minor is liable to pay out of his
property for “necessaries” supplied to him or to anyone whom he is legally
bound to support (Section 68). The claim arises not out of contract but out
of what are called Quasi-Contracts. Again it is only the property of the
minor, which is liable for meeting the liability arising out of such contracts.
He is not personally liable.
Legal rules for a Minor
 No rule of Estoppel to minor
 Estoppel means A person making a statement by words

spoken or written which induces others to believe and acted

upon.
 Rule preventing a person from denying the truth of such a

statement made previously by words spoken or written, by

which he has led another to believe and acted upon.
 Therefore, he is stopped from denying the said statement.

 i.e. cant say no, so should act.

 Minor is liable for Tort

 Surety for a Minor: a person who stands as surety for a minor can
be sued though the minor himself would not be liable
Unsound Mind
 A person is said to be of sound mind for the propose of making
a contract, if,
 at the time when he makes it, he is capable of understanding
the terms of the contract and
 To form a rational judgment as to its effect upon his interest.

 Therefore, if both of the above is not satisfied, then is a person

suffering of unsound mind.Eg:
 Idiots
 Lunatics
 Drunkards

 A person, who is usually of unsound mind, but occasionally of

sound mind, may make a contract when he is of sound mind
Lunatics
 Lunatic is a person who suffers from
intermittent intervals of sanity and insanity.

 All agreements made by lunatics during

intervals of sanity are valid

 Property of lunatic is liable for necessities of

life contracts but a lunatic cannot be held
personally liable
Idiots
 Idiot is a person who has completely
lost his mental balance.

 An agreement with an idiot is

absolutely void.
Drunkards

 A high level of intoxication make a

drunkards contract void

 A contract made by a person so

intoxicated as not to know the
consequences of his act is not binding
on him
Few other Persons are also
Prohibited to enter into a
contract.
 Alien Enemy.
 Insolvent.
 Foreign Sovereigns, their diplomatic
staff and accredited representatives of
the foreign states.
 Corporations (beyond MOA and AOA).
 Convicts
Contract by the other person
disqualified by law
 Alien enemy – Contracts with an alien enemy (who is a citizen of a foreign country
which is not in peaceful terms with India) are void on the grounds of public policy.
Contracts may be suspended during the war and may be revived after the war is over,
provided they are not time-barred.

 I Position of Contracts during War – An alien enemy can neither enter into contract
nor can be sued in an Indian Court except by the license by the Government.

 II Position of contracts during the war:

 If such contracts are against the public policy or are such that may benefit the enemy, then such
contracts are dissolved.

 If such contracts are not against public policy, then such contracts are merely suspended for the
duration of the war and revived after the war is over unless they have already become time
barred under the Law of Limitation.

 E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract

with Y who carries on business in India. Immediately after the formation of the
contract, a war broke out between India and Pakistan. In this case, X becomes an alien
enemy though he is Indian and contract between x and y (if not against the public
policy) will be suspended for the duration of the war and revived after the war is over.
Few other Persons are also
Prohibited to enter into a
contract
Foreign Sovereign and Ambassadors: - They can enter contract and
enforce those contracts in our courts but they cannot be sued in our courts
without the sanction of the Central Govt.

 Company under the companies act or statutory corporation under

the special act of parliament: - The contractual capacity of the company
is determined by objects clause of its Memorandum of Association, whereas
that of the statutory corporation is determined by the statute creating it. Any
act in excess of the power given is ultra vires and hence void.

 Insolvents - When a person is declared insolvent, it is only the Official

Receiver or Official Assignee who can enter into contracts relating to his
property and sue and be sued on his behalf. Thus, as soon as a person is
declared insolvent, he looses his contractual capacity.

 Convicts: A convict cannot enter into a contract while he is undergoing

imprisonment. Thus, this incapacity is only during the period of sentence.

 Insolvent – after the “order of discharge’’ he is competent to enter into

contracts.
Essential Elements of a Valid
Contract – Free consent –
Meaning
The consent of parties are said to be free when they are of
same mind on all material terms of contract. The parties
are said to be of same mind when they agree on 3’s
 Same subject matter

 Same sense

 Same time

 If any one of the following elements are in agreement, we

can say that there is absence of free consent
 Coercion

 Undue Influence

 Fraud

 Mistake

 Misrepresentation
Coercion
E.g.A threatens B to shoot him if he does not release him from debt
which A owes to B. This is coercion.
 Coercion" is the
 committing, or threatening to commit, any
act/crime or
 the unlawful detaining, or threatening to
detain, any property or any act
 forbidden by the Indian Penal Code 1860
 with the intention of causing any person to
enter into an agreement.

 Threat to commit Suicide amount to Coercion

Undue Influence
 Undue Influence means:
 When a special kind of relationship exists between the

parties
 such that one party is in a position to exercise undue

influence over the other.

 And such party uses his position to dominate the will of

the other party to obtain an unfair advantage over the

other party
 Essentials:
 There must be two persons.

 The relationship should satisfy between them.

 One should dominate the other.

 There must be unfair advantage.

 It is a moral character
 Undue Influence
 Some of the examples where undue influence
exists between the following relations:
 Superior and subordinate

 Principal and agent

 Doctor and Patent

 Promoter and Company

Case Laws: A Spiritual guru induced his devotee to gift him the whole of his
 Solicitor
property in turn of and Client
a promise of salvation of the devotee. Held, the consent of
the devotee was given under the undue influence. (Mannu Singh v/s Umadat
 Father and Son
Panday)
 Teacher and Student

 Spiritual guru and devotee

Undue Influence

 Under the following relationship there is

no assumption of undue influence.
 Husband and Wife
 Landlord and tenant
 Debtor and Creditor
 COERCION UNDUE INFLUENCE
Consent is given under threat The consent is given by a
person who is so situated in
relation to another that the
other person is in a position to
dominate his will
Coercion need not proceedUndue influence is between the
from parties to the contract butparties to the agreement
can be done thro/by a stranger

Contract is voidable at theThe contract is either voidable

option of one of the parties ofor the court may enforce it in a
the contract modified form
Coercion is mainly of physicalUndue influence is of moral and
nature psychological nature
Fraud
 Essentials:
 There must be a representation
 There must be two persons
 There must be an active concealment of the fact
 The person making the representation does not believe
it to be true
 There must be an intention of the proposer or the
promiser to deceive the other person
 The other person must have relied upon the
representation and must have been deceived and
suffered loss
 The representation must have been made before the
Commencement of the contract
 The representation must relate to a material fact which
exists now or existed in the past
Fraud

 The party defrauded has the following

remedies:
 The contract can be rescinded within
reasonable time limit
 He can insist on the performance of the
contract on the condition that he shall be
put in the position in which he would have
been if the representation made had been
true
 He can sue for damages
Misrepresentation

Essentials:
CL: A company’s prospectus contains a representation that it has statutory
powers to run its tramways by steam provide that the consent of the
 It must
government be representation
was obtained. The directors issuedof material
prospects stating fact
therein that
the company had the right to use steam power. They honestly believe that the
 It must
permission be
for the use of made before
steam power would bethe conclusion
granted. of
The permission was
refused. The company was that wound up. Held, the directors were guilty of
the contract
misrepresentation (Derry vs. Peek)
 It must be wrong but the person making it
believes it to be true
 It must have been made without any
intention of deceiving the other Person
 It need not be made directly made to the
Plaintiff
 MISREPRESENTATION FRAUD
It is a false statementIt is a false statement
without any intention todeliberately, or
deceive recklessly made to
deceive another
It is also called innocentIt is also called
misrepresentation intentional
misrepresentation
It makes the contractIt besides avoiding the
voidable at the option ofcontract. The aggrieved
the party injured party also has right to
sue for damages
Mistake
 Mistake may be defined as an erroneous
belief about something.

It may be of two kinds

 mistake of law
 Mistake of own country
 Mistake of foreign country

 mistake of fact
 A bilateral mistake
 Unilateral mistake
Mistake of law

 Mistake of law of the country is no

excuse, is a well-settled rule of law. A Party
to the contract cannot be allowed to ask
for relief on the ground that the act was
E.g. A & B purchases and sells a plot of land of 195 sq.mts. in Dublin,
donethatina ignorance
believing of law.over it. Actually in Dublin house
house can be constructed
cannot be constructed on a plot less than 200 sq.mts. The contract can be
avoided.

 Mistake of law of a foreign country:

such mistake is treated as mistake of fact,
and such agreement is treated as void.
Mistake of fact
E.g. A person was induced
was a power attorney.
to sign a gift deed (will), on the presentation that it
Unilateral Mistake - Unilateral means only one party to a contract is under a
mistake X
E.g. ofgoes
fact. to a shop and
A contract can introduces
be avoidedhimself as Y and
on the ground of purchases some goods
unilateral mistake, if it
canon
becredit.
shownThe
thatcontract
mistake is
wasvoid.
caused by Fraud or misrepresentation.
Types:

A unilateral mistake may be-

 Mistake as to the nature of transaction
 Mistake as to identity of party

E.g. X goes Mistake

Bilateral to a shop
- and introduces
Where both the himself as an
parties to Y agreement
and purchases some a
are under
mistake
goods onascredit.
to a matter of fact, is
The contract the agreement is void.
void.
Types

Mistake as to existence of subject-matter

Identity of subject-matter
Title of subject-matter
Quality of subject-matter
Quantity of subject-matter
Price of subject-matter
E.g. A agrees to buy a horse from B at certain price. The horse was dead at the
time of bargain and neither party was aware about the fact. Held, the agreement is
void.
MISTAKE OF FACT MISTAKE OF LAW

It vitiates a contract It does not vitiate a contract

unless it relates to:
Private rights of property

Willful representation of law

Mistake as to any foreign law

in which case it vitiate the

contract

If it is a mutual mistake as to anThe contract is not voidable,

existing fact material to theunless the mistake happens to
agreement, the contract is void be of foreign law
Lawful objects
 The consideration or object of an agreement
is lawful, unless –
 It is forbidden by law; or
 is of such nature that, if permitted it would defeat
the provisions of any law or
 is fraudulent;
 of involves or implies, injury to the person or
property of another; or
 the Court regards it as immoral, or
 opposed to public policy

 Every agreement of which the object or

consideration is unlawful is void.
Object or consideration are
unlawful in case of the following:
 Forbidden by law
 Performance defeats the provisions of law
 Fraudulent purpose
 Injurious to any person or property
 Immoral
 Are against public policy:
1. Interference with course of justice
2. Agreement to restrain prosecution
3. Agreement of maintenance and champerty
4. Marriage brokerage contract
5. Unfair or unreasonable dealings
Lawful objects
 It is forbidden by law - An act is forbidden by law when it is
punishable under the criminal law or is prohibited by special legislation
or regulations made by the competent authority.

 is of such nature that, if permitted it would defeat the

provisions of any law

 is fraudulent - an agreement if any made for any fraudulent purpose is

void. Thus, an agreement with an intention of fraud of creditors with a
view to defeat their right is void.

 of involves or implies, injury to the person or property of

another - injury means wrong, harm or damage. Person means ones
body, property includes both movable and immovable.

 the Court regards it as immoral - an agreement, the consideration or

object of which is immoral, e.g., agreement between husband and wife
for future separation, is unlawful (Sumitra Devi v/s Sulekha Kundu)

 opposed to public policy – An agreement which is injurious to the

general public or is against the interest of the society
Opposed to Public Policy - Lawful
objects
Agreement of trade with enemy: an agreement made with alien
enemy in the time of war is illegal on the ground of public policy. This is
base upon one of the following two reasons: either that the further
performance involves commercial transactions with the enemy, or that
the continued existence of agreement would confer upon the enemy
immediate or future benefit.
 Agreement to commit crime: where the consideration in an agreement
is to commit a crime, the agreement cannot be enforced in the court of
law, and such agreement is against public policy. The court will not
enforce such an agreement. Likewise an agreement to indemnify a person
against consequences of his criminal act is opposed to public policy and
hence unenforceable
 Mr. A promises to indemnify Mr. B in consideration of his beating Mr. C.
the agreement is opposed to public policy
 Agreement which interfere with the administration of justice: an
agreement the object of which is to interfere with the administration of
justice is unlawful, being opposed to public policy. It may take any of the
following forms:
 Interference with the course of justice: an agreement which
obstructs the ordinary process of justice is unlawful. Thus an agreement
for using improper influence of any kind with the judges or officers of the
justice is unlawful.
 Stifling prosecution: it is in public interest that if a person has committed
a crime, he must be prosecuted and punished. Hence an agreement not
to prosecute an offender is an agreement for stifling prosecution is
unlawful. That is in the case of non compoundable offence, such
agreement is unlawful.
Opposed to Public Policy -
Lawful objects
 Maintenance and Champerty: “Maintenance” is an agreement to give assistance, financial
or otherwise, to another to enable him to bring or defend legal proceedings when the person
giving assistance has got no legal interest of his own in the subject matter. “Champerty” is an
agreement whereby one party is to assist another to bring an action for recovering money or
property, and is to share in the proceeds of the action. Under English law both the agreement
are void. Under Indian law, however does not make them absolutely void.
 Agreements in restrain of legal proceedings, void (Section 28)
 Every agreement, by which any party thereto is restricted absolutely from enforcing his rights
under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus enforce his rights, is void to the extent.
 Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall
not render illegal contract, by which two or more persons agree that any dispute which may
arise between them in respect of any subject or class of subject shall be referred to arbitration,
and that only and amount awarded in such arbitration shall be recoverable in respect of the
dispute so referred.
 Exception 2: Saving of contract to refer question that have already arisen - Nor shall this
section render any illegal contract in writing, by which two or more persons agree to refer to
arbitration any question between them which has already arisen, or affect any provision of any
law in force for the time being as to reference to arbitration.
 trafficking in public offices and titles: agreement of the sale or transfer of public offices
and titles or for the procurement of a public recognition like Param Veer Chakra for monetary
consideration are unlawful, being opposed to public policy. Such agreements, if enforced would
lead to inefficiency and corruption in public life.
Opposed to Public Policy -
Lawful
 objects
Agreements tending to create interest opposed to duty: if a
person enters into an agreement whereby he is bound to do something
which is against his public or professional duty, the agreement is void
on the ground of public policy.
 CL: An agreement by a newspaper proprietor not to comment on the
conduct of a particular person is unlawful being opposed to Public
Policy (Neville vs. Dominion of Canada News Co., Limited)
 Agreement in restraint of parental rights: a father or in his
absence his mother is the legal guardian of a minor child. This right
cannot be bartered away of an agreement. A father cannot enter into
agreement which is inconsistent with his duties arising out of such
custody. If he enters into any such agreement such agreement is void
on the ground of public policy.
 Agreement restriction personal liberty: agreements that unduly
restrict the personal freedom of the parties to it are void as being
against public policy.
 Agreement in restraint of marriage: every agreement in restraint
of the marriage of any person, other than a minor, is void.
Opposed to Public Policy -
Lawful objects
 Marriage brokerage or brokerage agreement: an agreement by which a
person, for a monetary consideration, promises in return to procure the marriage of
another is void, being oppose to public policy. Similarly, an agreement to pay money
to the parent of a minor child in consideration of his/ her consenting to give the
minor in marriage is void, being opposed to public policy.
 Agreement interfering with marital rights: any agreement which interferes
with the performance of marital duties is void, being opposed to public policy.
 CL: An agreement to lend money to a women in consideration of her getting a
divorce and marrying the lender, is against public policy (Tikyat vs. Manohar)
 Agreement to defraud creditor or revenue authorities: an agreement the
object of which is to defraud the creditors or revenue authorities is not enforceable,
being oppose to public policy. A contract by which an employee gets an expense
allowance grossly in excess of the expenses actually incurred by him is illegal and a
fraud on revenue authorities.
 Agreement in restraint of trade: an agreement which interfere with the liberty of
a person to engage him-self in any lawful trade, profession or vocation is called an
agreement in restrain of trade is void, Subject to some exemptions. (Ex: sale of
goodwill, outgoing partner in a partnership firm)
VOID AGREEMENTS
 Agreements by incompetent parties
 Agreements under mutual mistake of fact material to the
agreement
 Agreement with unlawful consideration or object – (a)
immoral & illegal agreements (b) agreements opposed to
public policy
 Agreements unlawful in part
 Agreements without consideration
 Agreements in restraint of marriage
 Agreements in restraint of legal proceedings
 Agreements which are uncertain and ambiguous
 Agreement by way of wager or wagering agreements
 Agreements to do impossible acts
Wagering Agreements
 Definition:
 Agreement between two parties
 One promises to pay money or money’s worth
 On happening of some uncertain event
 In consideration of other party’s promise to pay
 If that event does or does not happen

 Example: P and Q enter into an agreement that

if Australia’s team wins the test match, P will
pay Rs. 100 and if it loses Q will pay Rs. 100 to
P
Bailment, Bailor and Bailee
 Bailment is
 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 instructions of the person delivering them.
(Section 148)
 Bailor
 is the person delivering the goods
 Bailee
 is the person to whom the goods are delivered.
Essentials of Bailment
 Contract
 Delivery of the Goods – Delivery of
possession of goods by Bailor to Bailee
 Possession (not ownership) is transferred
 Modes of Delivery
 Purpose (goods must be returned after a
specific purpose is accomplished)
 Consideration (generally in the form of
money payment)
Duties of the Bailor
 Disclose faults in goods (Sec 150)
 Bear Expenses (Sec 158)
 Indemnify(secure in respect of harm)
Bailee (Sec 159 & Sec 164)
 Receipt of Goods back on termination of
bailment
Duties of Bailee (or) Rights of
Bailor
 Care of Goods (Sec 153)
 To act consistently with the terms (Sec 153)
 Compensation for damage to goods (Sec 154)
 Not to mix goods bailed with others
 With bailor’s consent (Sec 155)
 Without bailor’s consent
 Return of the goods bailed (Sec 160)
 Compensation for failure to return (Sec 161)
 Increase or profit from goods bailed (Sec 163)
 Delivery of goods to Joint Bailors (Sec 165)
Rights of Bailee

 Enforcement of Bailor’s duties

 Delivery of goods to Joint Bailors
 Delivery of goods when Bailor’s title is
defective (Sec 166)
 Right of Lien (Secs 170 & 171)
 Wrongful deprivation of goods (Secs
180 & 181)
Pledge

 Pledge is a Bailment of goods as

security for payment of a debt or
performance of a promise
 Pawnor is the Bailor of such goods
 Pawnee is the Bailee of the goods
 Eg., A borrows Rs.200 from B and keeps
his watch as security for payment of the
debt, the bailment of watch is a pledge.
Essential Elements of a Contract
of Pledge
 Delivery of Goods (may be actual or
constructive)
 Security
 Goods – Only goods can be pledged.
Goods includes Shares, Documents,
Promissory Notes, Bills of Exchange or
Valuable things. However, money i.e.,
currency notes, cannot be pledged.
Rights of a Pawnee/Pledgee
 Right of Retainer (Sec 173)
 Retainer for subsequent advances (Sec 174)
 Reimbursement of Expenses (Sec 175)
 Rights in case of default by Pawnor (Sec 176)
 Suit
 Retention/Sale of Goods
 Surplus/Deficit on Sale
 No Notice
 Right against true owner (Sec 178A)
Rights of a Pawnor

 To get back goods

 To redeem goods before sale (Sec 177)
 Right to Notice of Sale
 Goods in proper condition
Pledge V. Bailment
 Pledge  Bailment
 Purpose: specific  Purpose: other
 Sale of goods: purposes like repairs,
Pledgee has a right of safe custody, etc.,
sale of pledged on  Sale of goods: No
default of pawnor right
 Use of goods: No  Use of goods: Can
right use as per the terms
of the contract
Law of Agency
 Definitions (Sec 182)
 Agent Is a person employed
 To do any act for another, or
 To represent another in dealings with third parties
 Principal
 Is the person
 For whom such act is done, or
 Who is so represented
Who can appoint Agent (Sec
183)
 Any person who
 Has attained the age of majority
and
 Is of sound mind,
can appoint another person
as his agent to act on his behalf with
an authority to bind him.
Who may become Agent (Sec
184)
 As between Principal and the third
party, any person can become an
Agent.
 Even a person who
 Has not attained majority; or
 Is of unsound mind, can become an agent
of another.
Essentials of a Contract of
Agency
 Test for Agency
 Rules as to Agency (Maxim: qui facit
per alium facit per se)
 Elements of Agency
 Intention
 Express/Implied Agreement
 Consideration not necessary
 Capacity to employ agent
 Capacity to be employed as agent
Kinds of Agents

 Based on Authority
 Universal Agent
 General Agent
 Special Agent
 Based on Nature of Work
 Commercial or Mercantile Agents
 Non-mercantile Agents
Duties of an Agent/Rights of the
The Principal instructed his agents to deliver goods only against cash
but agent delivered them on credit. Held Agent was liable for the price
which
A, anthe purchaser
agent for salefailed to pay
of goods, (Paulauthority
having Bier V. Chottalal)
to sell on credit, sells to
Principal
B on credit, without making proper and usual enquiries as to his
solvency. B, at the time of such sale is insolvent. A must make
compensation to his principal in respect of any loss thereby sustained.
 To act as per Principal’s directions (Sec
211)
 Skill and diligence (Sec 212)
 Render proper Accounts (Sec 213)
 Communicate with Principal (Sec 214)
A employs B to recover Rs. 1 lac from C. Through B’s misconduct the
 Not
moneytois notdeal onfrom
recovered his
C. Bown account
is not entitled (Secs
to remuneration 215
for his
& 216)and shall make good the loss sustained.
services,

 Pay all sums received (Sec 218)

 No remuneration for business
misconducted (Sec 220)
 Contd.,

 Not to make secret profits

 Not to disclose information
 Upon termination of agency (Sec 209)
 Not to delegate authority (Sec 190)
 Liable to pay damages
Rights of an Agent/Duties of the
Principal
 Right of Retainer (Sec 217)
 Right to Remuneration (Secs 219 & 220)
 Right of Lien (hold property to recover debt Sec
221)
 Right to be indemnified (Secs 222, 223, & 224)
 Right to compensation (Sec 225)
 Right of stoppage in transit
 Liability of Principal inducing others (Sec 237)
Mode of creation of Agency
A residing in Delhi and has a house at Kolkata. He appoints B
in Kolkata, by a Power of Attorney, as a caretaker of his
Ahouse.
owns a shop in Noida but lives in Delhi. He visits the shop
occasionally which is managed by B. B usually orders from C in A’s
 name formay
the shop,
Express Agreement
* Agent and
have to pays
sell goodsthem out of A’s
instantly funds
if it is with A’s knowledge.
of perishable nature and
B has an
cannot implied authority
withstand until furtherfrom A to orderfrom
instructions goods from C in his name for
Principal.
the
* A shop. sent by rail was not taken delivery at the destination. The
horse
Implied Agreement
 station master has to feed the horse. The Station master becomes an
AAgent
without
by authority,
Meaning: buys
When a person
necessity goods,
and hence doesthefor
some B. Later
owner onBbehalf
act shall sells them to C
of another
compensate on
him. his own
without
account;
suchAgency B’s conduct
other’s implies
by Estoppel
knowledge, theaact
ratification of purchase
may be ratified(to made for
approve him by A.
or sanction
or confirm) or disown by the other person. When he opts to ratify the
*Agency by Holding
same, he is bound by the acts as Out if he had expressly authorised the
Pperson
consigns
Partners
to do the act on his behalf (Secof196).
goods
are considered
to N with as
instructions
Agents not
each to other
sell below
and also
a fixed
of the
price.
Firm.
J
entersTheinto
*Agency an agreement of awith N (who is also does not indicate
as anthe reserve

price) for the
the Company.
in
management case
purchase of of
Company
entire Necessity
lot at a
considered
sum below
to act
reserve
Agents
price. P
of
keeps
quiet. his
P allows P isservant
stoppedAfrom
to buylatergoods
denying for that
him N ondid not have
credit from the
C andauthority to
pays for
them Agency by Ratification
 sell below the
regularly. Onreserve price.
one occasion, P pays A cash to purchase goods. A
purchases goods on credit and pockets the money. C can recover the price
from
By operation of Law
 P since through previous dealings, P has held out A as his Agent.
Conditions for a Relationship to
be an agency by necessity:
 Agent should neither be in a position nor have
any opportunity to communicate with his
Principal within the time available.
 Actual and definite commercial necessity to act
promptly.
 Acted bonafide and for the benefit of his
Principal.
 Adopted the most reasonable and practicable
cause.
 Possession of the goods belonging to his
principal and which are subject of contract.
Termination of Agency
 By Act of Parties
 Agreement (mutual agreement)
 Revocation by Principal thro notice
 Renunciation by Agent thro reasonable notice
 By Operation of Law
 Completion of Business
 Impossibility of performance
 Expiry of fixed period of time
 Insanity or death of Principal or Agent
 Destruction of subject matter
 Insolvency of Principal
 Termination of Sub-agent’s authority
 Dissolution of a Company
 Principal or Agent becoming Alien enemy
Performance of Contract

 Obligations of Parties to Contracts

 Actual Performance: If the promisor makes
an offer of performance to the promisee
and the offer to perform is accepted by the
promisee.
 Attempted Performance: If the promisor
makes an offer of performance to the
promisee; but the offer to perform is not
accepted by the promisee (also called offer
to perform or tender)
Persons liable for, and entitled
to, Performance (Sec 40 & Sec
42)
 Persons liable for  Persons entitled to
Performance: Performance:
 Promisor  Promisee
 Agent of Promisor  Agent of Promisee
 Any of the several  All the joint promisees
joint promisors together
 Legal Representatives  Legal Representatives
of a Promisor of a Promisee
Performance of Joint Promise

 Jointly and severally liable unless otherwise

provided
 Claim from other joint promisors, if he is
compelled to perform the whole promise or
makes a default in performance of his
promise
 Where one of the joint promisors is
released, other joint promisors shall
continue to be liable.
Discharge of a Contract

 Means termination
*A agrees to sell his bicycle toof contractual
B and both performed their
obligations, the contract is said to be discharged.
relations
respective

between
* In case ofthe parties
Attempted to asince
Performance, contract.
the offer is not accepted by
the other party, the promisor is discharged.
 Modes of Discharge of Contract:
 By performance
 By impossibility of performance

 By mutual agreement

 By lapse of time

 By operation of law
Where the time of performance by a party is due but the party fails to
 By breach of contract
perform within the time specified, the contract is discharged by non-
performance provided that the contract contained such specific
mentioning.
Discharge by Impossibility of
Performance
 Meaning:
Not called asIf
E.g., no impossibility
supervening impossibility: existed at the
time of formation
•Destruction
•Commercial of impossibility
subject matter (riseof the currency
in prices, contract; but the
fluctuations)
impossibility
•Incapacity
•Default by tothird
performpartyaarises subsequent
contract of personal service to the
•Outbreak
•Strikes, Civil
of war disturbances
formation
•Non-existence
of
•Self induced impossibility
the
or non-occurrence
(deliberate
contract;
of things
act orforming
negligence)
and
the basis of a
the
impossibility
contract, is ofor partial
etc., of objects
•Partial failure suchimpossibility
nature that it makes
the•Krell
performance
V Henry Case law:
•In H.B.Steamboat Co., V of
Hultoncontract
Case law: is impossible or
•X• hired a room from Y for viewing the coronation process of King
X agreed to hire a boat from Y for the purpose of viewing the naval
illegal
review is
Edward. called
on the supervening
eve of coronation of king andimpossibility.
for sailing around the fleet.
•The procession was cancelled because
 Reasons
•Due
for
to King’s SI:
illness, may
the naval review of
arise King’s
because
was illnessbut the fleet was
cancelled, of change
•Since
assembled.
the ultimate and only purpose of the contract was defeated, the
incontract
•law or
X usedwas of change
the discharged.
boat in circumstances
for sailing around the fleet. beyond
the•Although
contemplation
the primary purpose of ofparties.
the contract was defeated, the
secondary purpose was fulfilled and, therefore, the contract was not
discharged by supervening impossibility.
Discharge by Mutual
means substitution of a new contract in place of the original
contract. The consideration
the original contract.
for the new contract is the discharge of

Agreement
* means a change in one or more of the terms of a contract with mutual
consent of parties.
* Discharges the original contract and creates a new one
 Novation
* Parties remain the same
 Alteration
 Remission
 Rescission
Where a promisee(cancellation
agrees to dispense with of a contract
the performance of a by
promise made to him or
one or all the parties to the contract)
Extend the time of performance due by the promisor or
 Merger (conversion of an inferior right
Accept any other consideration than agreed to in the contract, etc.,

into a superior right and the effect is due

to conversion inferior right is
discharged)
Discharge by operation of law

 Death (Contracts involving personal

skills, knowledge or ability of the
deceased party are discharged
automatically on the death of the
promisor).
 Insolvency
 Unauthorized material alterations
Discharge by Breach of
Contract
Where the promisor declares his intention of not performing the
•
contract even before the time stipulated for performance of contract
 Meaning:
has arrived, it Failure of a breach.
is called as anticipatory party to perform
Express Repudiation: If before the time or performance of contract
hishas
part ofa party
contract
•
arrived, expressly refuses to perform the contract, it is
called as express repudation.
 Consequences:
Party disables himself: Impossible for him to perform the contract,
•
this is called as anticipatory breach by disablement of a party.
 The other
•Effects party
Option 1: is relieved
The aggrieved from
party may wait performing
till the due date, i.e.,
its part
it may treatof
theobligation.
contract as operative.
•Option 2: The aggrieved party may decide not to wait till the due
 The
date. It other party
may immediately is theentitled
rescind to damages
contract and claim proceed for
breach.
against the party at fault.
 Actual Breach (on the due date or
during performance)
 Anticipatory Breach
Remedies for breach of a
contract
 Rescission (means a right available to
an aggrieved party to terminate a
Effects: - The aggrieved party is not required to perform his part of
contract)
A promises B to perform a concert for 3 weeks continuously. A
obligation;
wilfully absents on the third week. B rescinds the contract. B can claim
- The aggrieved party can claim compensation for any loss caused to him.
 Suit forsustained
for loss damages for loss sustained due to non-performance.
Meaning: Monetary compensation allowed for loss suffered by the
 Suit for
.Specific
aggrieved specific
performance performances
means
party due to breach
seeking an order from the court that the
of a contract.
promise specified in the contract shall be carried out.
Object is Not to punish the party at default and To make good the
 Suit. Whenfor
financial injunction
actual
loss
damages arising from breach are not measurable and
suffered
Injunctioncompensation
monetary means by the
an order aggrieved
of the
is not
party dueatoparty
court restraining
an adequate
breach
remedy, then SP fromofcarrying
is allowed.
e.g.,contract.
N, a damages
film star, agreed to act exclusively
. out a particular act. remedy;for a particular producer, of
 Suit
for onefor
Where
The
contract year.
remedy Quantum
During the year,
is available
involves numerous when
or
Meriut
are an adequate
she contracted
the
minutecourt
where
hastothe
details, and,
the performance
actdiscretion
for some whether
therefore,other
it is notor
If not
aA party
producer.
to prevents
Held,
grant she the other
could
injunction; beparty from
restrained
to where atoparty completing
bythe
an of his
injunction obligation
(Warner stunder
Bros.
E.g., contracts
possible for the with
court B to deliver
supervise the to
him 250 contract
kilos
performance ofpromises
rice before
the 1to
contract. do an
the
may. contract,
V Nelson)
act
A which the aggrieved
requires
could deliver 130party
personal
only may claim
performance
kilos before payment
1st but
may, and on
afterwards quantum
couldrefuses
not to
meriut
deliver for the
perform such
anything partactofresulting
later. Bcontract
retainsinalready
breach
130 performed
kilosofafter thatby
contract, him.
the
date. court
He ismay
bound restrain
to paytheAdefaulting
for them. party from performing such act in future.