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MODULE SECOND GENERAL PRINCIPLES

OF CONTRACT UNDER INDIAN CONTRACT


ACT,1872

DEFINATION OF CONTRACT
ACCORDING TO ANSON
ESSENTIALS OF A VALID CONTRACT
PROPOSAL
EQUIVALENT WORDS
SOME ESSENTIALS OF A OFFER
KINDS OF OFFER
ACCEPTANCE
EFFECT OF A VALID ACCEPTANCE
EXAMPLE
DECIDED CASES

(i) According to Anson A contract is an Agreement enforceable by law made between two or
more persons by whom rights are acquired by one or more to acts or forbearances on the part of
the other or others.

(ii) According to Salmond Contract is an Agreement, creating and defining obligations


between the parties

(iii) According to Sec.2 (h) of Contract Act An Agreement enforceable by aw is a contract.

Essentials of a valid Contract: - The essentials of a valid Contract are inherent in the Section
10 of the Indian Contract act. Which says ?
Sec.10 Which agreement is Contracts

All Agreements are Contracts if they are made by the free consent of Parties, Competent to
Contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void.

So the essentials for a valid contract are as follows:-

1. More than one party.

2. An Agreement Between the parties

3. Free consent of parties.

4. Parties should be Competent to contract.

5. Consideration should be lawful.

6. The object of contract should be lawful.

7. Such contract should not be declared void.

Contract Sec-2 (h)

According to Sec 2 (h). Contract is an Agreement which is enforceable by law. In order That an
agreement becomes a contract it has to satisfy all the essentials of a valid contract as Mentioned
in Sec- 10.

1. There must be an Agreement The first and foremost essential of a valid contract is that
there must be an Agreement, According to Sec-2(e) Every Promise and every set of promises
,forming the consideration for each other is an Agreement The Agreement consists of two Basic
elements

Proposal (Offer). , Acceptance.

(1) Proposal A proposal and its acceptance is the universally acknowledged process for the
making of an agreement. The Proposal is the starting point; Sec-2 (a) defines Proposal.
As When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is
said to make a proposal.

(ii) Acceptance Sec-2 (b) When the person to whom the Proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.

(2) The Agreement must be made by competent parties : - A contract is valid only if it has been

Made by the parties who are competent to make it. See 11 of the act.

The following persons are competent to enter into a contract -

i) Who are Major

ii) Who are of sound mind?

iii) Who are not disqualified from contracting by any law to which they are subject?

Thus, according to Sec-11 of the act, any person who is a minor or is of unsound mind or has
been declared disqualified by any law is not competent to enter into a contract and if an
Agreement is made by any of such persons, it is void.

(3) Agreement must be made by the free Consent of parties: - Another requirement for a valid
contract is that the Agreement must have been made with the free consent of the parties, if
consent is not free, the contract becomes voidable In Mikol Bottlers Ltd. Vs. M/S Dhillon Kool
Drinks AIR 1995, the Delhi High Court held that an Agreement to be valid should be made by
free consent of the parties apart from other requirement.

(4) The Agreement must be made for lawful consideration: - To constitute a valid contract, it
is essential that agreement is made for a lawful consideration. According to Sec-23 of the Act, if
the Agreement is not for a lawful consideration the agreement is void. In Nutan Kumar vs. IInd.
Additional District judge AIR 1994 ALL 299

(5) The agreement must be made for lawful object: - The object of the Agreement must be
lawful otherwise the Agreement becomes void and an important element of a valid contract is
that the Agreement is made for a lawful object Sec-23
(6) The agreement must not have been declared to be void by contract Act or any other Act
another important element for a valid contract is that the agreement should not be from
amongst, such agreement which have been specifically declared void as per Sec-26, 27, 28, 29,
30 and 56 of the act.

Proposal Sec 2 (a) When one person signifies to another, his willingness to do or to
abstain from doing anything. With a view to obtaining the assent or hat other to such act or
abstinence, he is said to make a proposal.

The word proposal is equivalent the term offer under the English contract act

These are some essentials of an offer

1. Communication of offer is Necessary (Sec.4) The Communication of a proposal is


complete when it comes to the knowledge of the person to whom it is made, It is to be
remembered that there is no offer till it is communicated to the offeree as otherwise he cannot
accept it, being completely unaware of it, it is, therefore Necessary that a person must have
knowledge of the offer at the time of its acceptance, doing anything in ignorance of the offer can
never be treated as its acceptance.

In Lalman Shukal vs. Gauri Dutt (1913) A.L.J. 489 In this case the accuser Lalman
Shukla, was serving as a munim in the firm of defendant Gauri Dutt. The Nephew of Gauri Dutt
ran away from his house and no trace of him was found for some time. On 21st Jan.1912
defendant sent the plaintiff to Hardwar for tracing the boy and paid him his travelling expenses.
After sending the plaintiff to Hardwar the defendant by hand bills advertised that a reward of
Rs.501 would be paid to anyone who would find the boy. The plaintiff had no knowledge of the
reward advertised, he found the bay at Rishikesh and brought him back on 25th of Jan.1912.The
plaintiff filed a suit for the recovery of the reward advertised, it was held that since the plaintiff
was ignorant of the offer of reward his act of bringing the last boy did not amount to the
acceptance of the offer and therefore, he was not entitled to claim the reward.

2. Intention to create legal relationship It is necessary that the offer should be made with an
intention to create legal relationship, Promise in the case of social engagements is generally
without an intention to create legal relationship, such an agreement cannot be considered to be a
contract, so an agreement to go for a walk, to go to a movie, to play same game or entertain other
person with a dinner cannot be enforced in a court of law.

In Balfour v. Balfour: - An intention not to create legal relationship was implied. It was held
that in this case, there being no intention to create legal relationship, the husband was not liable.

3. Offer must be certain: - An offer must be certain and definite .Its terms should not be so
vague so as to prevent a contract being formed. Example

(i) A. Agree to sell to B. a Hundred tons of oil. There is nothing whatever to show

As to what kind of oil was intended, hence the agreement is void for uncertainly.

(ii) A. agrees to sell B. My white horse for five hundred rupees or one thousand.

The agreement will be void because there is nothing to show which at the two

Prices were to be given.

. Kinds of offer

(i) Cross offer

(ii) Counter offer

(iii) Specific and General offer

(iv) Standing offer

(v) Offer and invitation of offer

(vi) Offer may be express or implied

(vii) Offer may be positive or negative

(viii) Offer may be conditional or unconditional.


(1) Cross Offers When the offers made by two persons to each other. Containing similar
terms of bargain cross each other in post they are known as Cross Offers
Example On 11th Oct. A offers to sell his house to B for Rs.50,000/- through a letter
sent by post on the same day i.e. on 11th Oct. B also writes to A making an offer to
purchase As house for Rs.50,000/- either. A or B does not know about the others
offer.
- No contract arises between A and B. The contract can be completed only when A
accepts Bs offer or B accepts As offer,

(2) Counter offer or Counter Proposal.


An offer or Proposal is made by the Promisor. The person accepting the proposal is called
the Promisee. A proposal when accepted becomes a promise. In Order to convert a
proposal into a promise, the acceptance must be absolute and unqualified for a valid
contract. The Promisee must accept the terms and conditions of the proposal of the
promisor if any term is refused or varied or added or deleted by the offeree (Promisee),
his acceptance merely operates as a counter offer. When a Counter-offer is made by the
promisee. There could not be a contract between the offers. When a Counter- offer is
made by the promisee, there could not be a contract between the parties.

(1) Specific Offer: - Specific offer is also known as offer to an individual when the offer
is made to a specific or an ascertained person, it is known as a Specific offer or offer
to an individual.
Example of Specific Offer:- A offers to sell his car to B for Rs. One Lakh. This is
specific offer offered to an ascertained person, i.e. B.
(2) General offer: - We come to know that when the offer is made to a specific or an
ascertained person, it is known as a Specific Offer. When the offer is not made to any
particular person, but it is made to the public at large, it is known as General Offer.
Carlill Vs. Carbolic Smoke Ball Co. (1893 (1) Q.B 256)
Judgment The house of Lords gave the judgement in favour Mrs. Carlill and opined
that the company was held liable, it held that the declaration was a true offer, it was not a
mere advertisement, it was a general offer. The deposit in the bank itself was the
evidence of the sincerity of the company. The offer was open to anybody who would
perform the conditions mentioned in the advertisement. No special acceptance from the
individual was necessary. In such cases performance of the conditions was sufficient to
show the acceptance from that individual.
(3) Invitation to offer Where a party without expressing his final willingness, proposes
certain terms on which he is willing to negotiate. He does not make an offer but he only
invites the other party to make an offer an terms, it is called Invitation to offer.
Examples
1. An advertisement in the newspaper House to let or House for sale etc.
2. A Shopkeepers catalogue of prices, Hotel menu cards etc.
3. A Tender
- Harvey Vs. Facie (1893 A.C.552)

Acceptance- Sec-2 (b) When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted, A proposal when accepted, become a promise. A
person, when accepted results in an agreement, after the acceptance of the proposal a contract
between two parties can arise.

Effect of Acceptance

A contract is created only after an offer is accepted.

Anson. Explained the effect of acceptance as Acceptance is to an offer what alighted is to a


train of Gunpowder.

Essentials of a Valid Acceptance

I. Acceptance should be Communicated:-It means that the offree must signify his assent or
communicate the acceptance. The communication of acceptance is deemed to be made by any
act or omission of the party accepting, by which he intends to communicate such acceptance Sec
3. Communication may be oral, by post, by telegram, by a massage on phone, through a
messenger or in any other reasonable manner; sometimes the conduct of a person might indicate
his assent

E.g. a passenger travels in bus.

- Felt house V. Bindley it was held that since the nephew had not communicated the
acceptance to Felt House, no contract had arisen in this case and therefore felt house had not
become the owner of the horse, [ this is absence of acceptance,]

2. Acceptance may be express or implied: - An acceptance of an offer may be

Express or implied, where an offer is accepted by words, written or oral, the acceptance is called
express. When an offer is accepted by conduct, the acceptance is called implied.

In Carlill Vs. Cabrolic Smoke Ball Co.(1893)

3. Acceptance must be absolute and unqualified: - The first and

Foremost essential of a valid acceptance is that it must be absolute and unconditional. In this
regard Sec-7 says that in order to convert a proposal into a promise the acceptance must be
absolute and unqualified.

4. Communication of acceptance must be made by the acceptor or his authorized agent A


communication of acceptance to be made valid must be either by the offeree himself or his
authorized agent. A communication of acceptance by any other person will not be valid.

In Powell vs. Lee

5. The acceptance must be expressed in some usual and reasonable manner: - Sec-7 the
acceptance must be expressed in some usual and reasonable manner. Unless the proposal
prescribes the manner in which it is to be accepted, If the proposal prescribes a manner in which
it is to be accepted and the acceptance is not made in such manner the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his proposal shall be
accepted in the prescribed manner, and not otherwise If he fails to do so, he accepts the
acceptance.

For example: - A offers to B to sell his watch for Rs. 100/-


- B may accept this offer orally or by writing a letter or by sending a telegram. But if A says in
his offer that acceptance is to be communicated only by a telegram then B should accept it by
sending a telegram, if B sends a post card for acceptance. A can object to it and insist that his
offer shall be accepted only by a telegram, but if A does not insist upon it, he accepts the
acceptance as actually communicated.

6. Acceptance should be made while the offer is still subsisting: - It has already been noted
that the offeror is free to withdraw the offer or the offer is revoked under various circumstances
mentioned in Sec-6. After the offer has been withdrawn or has lapsed, there is nothing which can
be accepted it is therefore necessary that the acceptance should be made while the offer is still
alive and subsisting. Acceptance of the offer is deemed to have ended by rejection of the original
offer or a counter offer. In such a case also, once the offer has lapsed, an attempt to accept the
same would not give rise to any legal obligation.

ASSIGNMENT EXERCISE

Q.1 Define the acceptance. Explain its legal rules with the help of decided cases.

Q.2 Define the proposal and acceptance. Explain the essentials of valid acceptance.

Q.3 Define the kinds of offer.

Q.4 what is the cross offer and counter offer?

Q.5 all Contract are Agreement, but all agreement are not contract Discuss.

Q.6 Define a Contract, what are the essentials of valid contract.

NOTE- REFERANCE BOOK


Dr. S.K.KAPOOR
For other current cases visit (www.supremecourt.in) site.

Definition of Consideration
According to Blackstone
According to Pollock
Meaning of Consideration
Nature of Consideration
Difference between English and Indian law of Consideration.
An Agreement Made without Consideration is Void
Exceptions to the General Rule
EXAMPLE
DECIDED cases

Definition of Consideration the term consideration has been defined by different jurists in a
different manner as follows.

According to Blackstone: - Consideration is the recompense given by the party contracting to


the other
According to Pollock: - Consideration is the Price for which the promise of the other is bought
and the promise thus given for value is enforceable

Thus, consideration is the price for the promise.

The definition of consideration as a Price of the Promise has been

Commended by Cheshire and Fifoat. According to them it is easier to understand it corresponds


mere happily to the normal exchange of promises and it emphasizes the commercial character of
the English contract.

According to Sec-2 (d)When, at the desire of the Promiser, 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.

Meaning of Consideration :- In the ordinary course, when a person makes a promise to another,
he does so with the intention to desire some advantage which the person to whom the proposal is
made is capable of conferring upon him. At the desire of the promisor, the promise or any other
person has either.

(i) Done something or abstained from doing something.

(ii) Does or abstains from doing something

(iii) Promises to do or to abstain from doing something, this act which is done or promised
to be done are known as consideration.

Nature of Consideration: - Consideration is an important requisite at a contract. An analysis of


any contract will show that it consists of two clearly separable parts

(i) Promise on the one hand

(ii) Consideration for the promise on the other hand,

A person who makes a promise to do or refrain from doing something as a legal duty
Usually does so as a return or equivalent of some benefit according to him or as a return or
equivalent of some class damage or in convenience that may occasion, or may have been
occasioned, to the other party in respect of the promise. The benefit so received or the loss
damage or inconvenience so caused is regarded in law as consideration of the promise, it may be
described as something accepted or agreed upon as a return or equivalent for the promise made.

- Definition of Consideration Analyzed: - Sec-2 (d)

s1) At the desire of the Promisar The Act or forbearance must be at the desire of the
promisar it is to be remembered that the act or forbearance must be done at the desire of the
promisar , if it is done at the instance of a third party, or without the desire of the promisare, it is
no consideration Durga Prasad Vs. Baldeo (1880) 3 All 221.

(2) The Promisee or any other person it is a well-settled rule of English Law that
consideration must move from the promisee alone. It means that the act or abstinence or promise
constituting the consideration must be done suffered or made by the promise himself and at the
request of the promisor.

Chinnaya vs. Ramaya (1882) 4 Mad 137

Yamuna Das Vs. Rani Auttar (1911) 30 In this case A mortgages his property to B and B
promises to pay A debt to C C. cannot file a suit against B to enforce B promises C, is not a
party to the Contract between A and B.

(3) Consideration may consist of an act or abstinence: - Consideration may consist of a


positive act or abstinence, i.e. e Negative act. Thus, an agreement between A and B under which
A promises not to file suit against B for another two years in consideration of B promising to
raise the rate of interest from 60% to 90% is a good contract. As abstinence being the
consideration for Bs promise.

(4) Consideration is three types:-

(i) Past Consideration (has done or abstained from doing)


(ii) Present Consideration (does or abstains from doing)

(iii) Future Consideration (Promises to do or to abstain from doing

(i) Past Consideration It means that the consideration for any promise was given earlier
and the promise is made thereafter.

Example A requests to B to find his lost dog. After B has done the same, if A promise
to pay B Rs. 100 for that it is past consideration. A finds Bs purse and gives it to him, B
promise to pay A Rs.50. This is a contract.

(ii) Present or executed Consideration When one of the parties to the contact has performed
his part of the promise which constitutes the consideration for the promise by the other sides it
is knows as executed consideration

(iii) Future or Executory - When one person makes a promise in exchange for the promise by
the other side, the performance of the obligation by each side, to be made subsequent to the
making of the contract, the consideration is known as executor,

Example A agrees to supply certain goods to B and B agrees to pay for them on a future
date, this is a case of executory consideration.

An Agreement made without consideration is void Section-25 of the Indian Contract Act
declares the General rule that an Agreement made without consideration is void. Section, 10 also
says that an Agreement becomes a Contract only when there is some lawful Consideration for it.
Thus the Cumulative effect of these two Sections is that every Agreement must be supported by
Consideration.

Exceptions to the General Rule

Natural love and affection-Section25 (1) says that an agreement made without Consideration is
that Void.

Promise to Compensate for something done Voluntarity.Section25 (2).


Promise to pay a time barred dept-Section25 (3).

No Consideration is Necessary to Completed Gifts.

No Consideration is necessary to dispenses with or remit the performance of Contract


wholly or in part.

No Consideration is Necessary to extend the time for the performance of Contract.

No Consideration is necessary to accept any satisfaction instead of the whole claim.

No Consideration is necessary for the Gratuitous bailments.

No Consideration is necessary to create on agency.

Natural lone and affection- Section.25 says that an Agreement made without Consideration is not
void.

Provided it is expressed in writing and registered under the law for the time being in force for
the Registration of documents and is made on account of natural lone and affection between
parties standing in a near relation to each other.

Example- A for Natural lone and affection Promise to give his son B. Rs. 1000.A puts his
promise to B. into writing and registers it, this will be a valid. Contract even when made
without Consideration.

Promise to Compensate for something done voluntarily.Section.25 (2) an Agreement made


without Consideration is not void, provided, it is a promise to compensate wholly or in part, a
person who has already voluntarily done something for the Promisor or something which the
Promisor was legally Compellable to do.

Promise to Pay a time-barred dept- Section25 (3) says that an Agreement made without
Consideration is not void. Provided - it is a Promise made in Writing and signed by the person to
be charged there with, or by his agent generally or specially authorized in that behalf - to

Pay wholly or in part a dept which the creditor might have enforced payment but for the law for
the limitation of suits.
Example-A owes B Rs 1000 but the dept is barred by the Limitation Act. A signs a written
Promise to pay B Rs. 500 an account of the dept. This will be a valid contract and shall not be
Void for want of Consideration.

No Consideration is Necessary to completed gifts -Section.25 Provides that as between the


donor and the donee any Gift actually made will be valid through there be no registered deed.
Nearness of relationship or natural love. In order to bring into operation this explanation the gift
must be completed. Thus if a person gives a gift of certain properties to another according to the
Provisions of the Transfer of Property Act, he cannot subsequently demand the Property back on
the ground of want of Consideration. Because Gift is Complete.

No Consideration is Necessary to extend the time for the Performance of Contract- Section.
63 Provides in the second place that every Promise may extend the time for the Performance of
contract without requiring any Consideration to support such an Agreement.

No Consideration is Necessary to accept any Satisfaction instead of the whole claim- Sec.63
provides in the third Place that every Promise may accept any Satisfaction which he thin fit
instead of the whole claim under the contract

Example- A owes b 5,000 rupees. A pays to B 1,000 rupees and B accepts them in satisfaction
of his whole claim on A. This payment is a discharge of the whole claim.

No Consideration is Necessary for the Gratuitous bailments Bailments may be divided


into

Three kinds- i.e. S

Bailments for the Benefit of the Bailer.

Bailment for the Benefit of the Bailee.

Bailment for the Natural benefit of both, the bailer and bailee.

A bailment for the benefit of the bailee is called the Gratuitous Bailment. A gratuitous bailment
is one in which a loan of article is made without any charge, detriment or Consideration. The
Gratuitous Bailment is bust exemplified by a loan of some article. Thus, A example- A barrows
B.s scooter to use for a day. The bailment is one for the sole benefit of A even if no
Consideration is paid.

No Consideration is Necessary to create an Agency- Lastly, S. 185 Provides that no


Consideration is necessary to create a contract of an agency .Generally an agent is Remunerated
by way of Commission for Services rendered but no Consideration is immediately necessary at
the of the Appointment.

Q.1 What is consideration and define the Present, Past, Future Consideration?

Q.2 Define An Agreement Made without Consideration is Void

Q.3 Difference between English and Indian law of Consideration.

Void Contracts
Essential Ingredients of Void Contracts.
Voidable Contracts
Ingredients of Voidable Contract
Discharge by impossibility of Performance and Frustration
Specific Grounds of Frustration
Distinction between Void Contract And voidable Contract
Distinction between Void Contract And Illegal Contract

Void Contracts
Sec 2 (g) defines Void agreement- An agreement not enforceable by law is said to be void.
Essential Ingredients of Void Contracts.

A Contract is Void, when it is immoral, impossible opposed to Public Policy,


without Consideration or when Made with a Minor.
1) A Void Contract cannot be converted into valid Contract at the option of the
Parties thereto.
2) It is rigid in Nature.
3) It is ab initio void.
4) When a Contract is shown to be Void it can create no legal rights, it is a nullity.

Void Contracts are:-

a) Agreement with Minors, Persons of Unsound mind Drunkards (Sec 11)


b) Agreements without Consideration (sec 25)
c) Agreements in restraint of Marriage (sec 26)
d) Agreements in restraint of trade (Sec 27)
e) Agreements in restraint of legal Proceeding (Sec 28)

Voidable Contracts

Voidable Contracts

Ingredients of Voidable Contract


Void Contracts
Ingredients of Void Contract
Unenforceable Contract.

Voidable Contracts- Section 2(1) of the Indian Contract Act, 1872 defines-
Voidable Contracts

Section 2(1) Voidable Contract- An agreement which is enforceable by law at


the option at one or more of the Parties thereto, but not at the option of the other
or others, is a Voidable Contract.
Ingredients of Voidable Contract:
1) Where Consent to an agreement is caused by Coercion (Sec-15,), undue influence
(Sec.16) fraud (Sec.17). Misrepresentation (Sec.18), Mistake (Sec 20, 21 and 22),
the agreement is a Contract Voidable at the option of the party whose consent was
so caused.
2) A party to a Voidable Contract can give effect to the contract.
3) It is a not ab initio void. It remains in force until one of its parties Chooses to
avoid it.

Distinction between Void Contract And voidable Contract

Void Contract Voidable Contract

i) It is often rigid in nature i) It is flexible in Nature.


ii) It is ab initio void. ii) It is not ab initio void. It is valid until
one of its Parties Prefer to avoid it.
iii) A Contract Is Void, When It Is iii) Contract is Voidable only when it is
Immoral Impossible, Opposed To induced by Coercion, Undue influence
Public Policy. Without Consideration fraud or Misrepresentation.
Or When It Was Made With A Minor.
iv) A Void Contract Cannot Be Converted iv) A Voidable Contract Can Be
into a valid. Contract even at the Converted Into A Valid Contract, at
option of the Parties thereto. the option of the
v) It cannot give any legal rights it is v) A Voidable Contract it is legally
nullity. effective, unless and until it is disputed
and set aside by Person entitled to do
so.

Distinction between Void Contract And Illegal Contract


Void Contract Illegal Contract
i) A Void Contract is merely a Voidable i) The Parties to an illegal Contract are
and not enforceable by law. The liable to be penalized.
parties to it are not necessarily liable
to Penalty.

ii) In a Void Contract, Collateral ii) In an illegal Contract the collateral


Contracts are recognized. Contracts are also illegal.

Discharge by impossibility of Performance and Frustration


Sec.56 Agreement to d impossible act- An agreement to do an act impossible in itself
is Void.
Contract t do act afterwards becoming impossible or unlawful
A Contract to do an act which, after the Contract is Made, becomes impossible, or, by
of some event which the Promisor Cold not prevent Unlawful Such Promisor Must
Make Compensation to such Promises for any loss which Such Promise Sustains
through the non-Performance of the Promises.
Compensation for les through non-Performance of act know to be impossible or
unlawful-
Example:

(a) A agrees with B to discover treasure by Magic. The agreement is void.


(b) A Contracts to act at a thereafter for six Months in Consideration of a Sum Paid in
advance by B. On Several occasions. A is too ill to act. The Contract to act on
those occasions becomes void.
Important Points

Ingredients: - Section 56 explains the Circumstances in which the Doctrine of


Frustration arises. The Ingredients of section 56 are as follows:-
i) The agreement is to do an act impossible act is in itself.
ii) A Contract to do an act becomes impossible or Unlawful by an event which the
promisor could not foresee.
iii) The Promisor knew or might have known with reasonable diligence that the act he
promised is impossible or unlawful, but the promises did not know of it, in such
Circumstance the promisor is held reliable to Pay Compensation to the Promises
for any loss occurred by the Promise for the non performance of the promise.
iv) Illustrations appended to Section 56 clarify and give Propositions of this doctrine.

Krell vs. Henery (1903)2 KB 740


The defendant topic the plaintiff flat on rent for two days (26 and 27 of June,
1903) to see the kings coronation Procession on the route in which the flat was situated. He also
paid some amount as an advance. The coronation was cancelled due to the kings illness. The
defendant refused to pay the balance of the amount as the purpose of the contract was made
frustrated. The House of Lords held that the plaintiff was not entitled to recover the amount.
Specific Grounds of Frustration-

1. Destruction of the Subject Matter where the actual subject Matter was destroyed and it
becomes impossible to perform a contract. The Doctrine of Frustration is applicable.
Example- Taylor vs. Caldwell.
2. Change of circumstances- A contract is made between two parties. After it some
unavoidable circumstances occurred and the contract could not be performed. Frustration
is occurred. Then the change of circumstances can be pleaded as a good defense.
Contingent contract
Discharge of a contract
Doctrine of Novation
Quantum Meruit

Contingent contract

Section 31, a contingent contract is a contract to do or not to do something, if some event,


collateral to such contract, does not happen. When the contract is dependent or conditional upon
the happening or non-happening of a certain future event, the contract is contingent.

For example, A contracts to pay B Rs.10, 000 if B.s house is burnt, this is a contingent
contract.1 The payment of the amount is contingent on the happening of a collateral event i.e.,
the burning of the house. All contracts of insurance or indemnity aim at payment of money only
after a certain event happens, or the loss is caused, and therefore, they are contingent contracts. A
wagering agreement is also a contingent contract, but that type of contingent contract has been
specifically declared to be void by section 30.

Enforcement of contingent contract

The following are the rules governing the enforcement of the various kinds of contingent
contracts:

1. Contracts contingent on an event happening Contingent contracts to do or not to do anything if


an uncertain future event happens cannot be enforced by law unless and until that event has
happened.

If the event becomes impossible, such contracts become void.7

(a) A makes a contract with B to buy B.s house if A survives C. This contract cannot be enforced
by law unless and until C dies in A.s life-time.

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse
has been offered refuses to buy him: The contract cannot be enforced by law unless and until C
refuses to buy the horse.
2. Contracts contingent on the event not happening Contingent contracts to do or not to do
anything if an uncertain future event does not happen, can be enforced when the happening of
that event becomes impossible, and not before. Sec. 33.

For example, A agrees to pay B a sum of money if a certain ship does not return. This ship is
sunk. The contract can be enforced when the ship sinks.10

3. Contract contingent on the future conduct of a living person If the future event on which a
contract is contingent is the way in which a person will act at an unspecified time, the event shall
be considered to become impossible when such person does anything which renders impossible
that he should so act within any definite time, or otherwise than under future contingencies. Sec
34 A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must
now be considered impossible although it is possible that D may die, and that C may afterwards
marry B.12 Sec 34

4. Contracts contingent on happening of specified event within fixed time Contingent contracts
to do or not to do anything, if a specified uncertain event happens within a fixed time, become
void if, at the expiration of the time fixed, such event has not happened, or if, before the time
fixed, such event becomes impossible. Sec. 35 A promises to pay B a sum of money if a certain
ship returns within a year. The contracts may be enforced if the ship returns within the year, and
becomes void if the ship is burnt within the year. Sec 35

5. Contracts contingent on not happening of specified event within a fixed time Contingent
contracts to do or not to do anything, if a specified uncertain event does not happens within a
fixed time, may be enforced by law when the time fixed has expired and such event has not
happened or before the time fixed has expired, if it becomes certain that such event will not
happen.

For example, A promises to pay B a sum of money if a certain ship does not return within a
year. The contract may be enforced if the ship does not return within the year, or is burnt within
the year. Sec 35
6. Agreements contingent on impossible event Contingent agreements to do or not to do
anything, if an impossible event happens, are void, whether the impossibility of the event is
known or not to the parties to the agreement at the time when it is made. Sec 36

a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is
void.

(b) A agrees to pay B, 1000 rupees if B will marry A.s daughter, C. C was dead at the time of the
agreement. The agreement is void.

Discharge of a contract

(1)Discharge by Performance Each party to a contract is bound to perform his part of the
obligation. After the parties have made due performance of the contract. Their liability under the
contract comes to an end. In such a case, the contract is said to be discharged by performance.
Various rules of performance of the contract have been discussed.

(2) Discharge by Breach of contract Thus, insolvency of a party to a contract discharges the
contract. A party is released from performing his part of the contract by law e.g. an insolvent
from paying his debts, a person whose performance of a transaction is declared by law to be
illegal is also similarly excused (Sec.37)

(3) Discharge by refusing tender of performance Where a Promisor has made an offer of
performance to the Promisee, and the offer has not been accepted, the promisor is not responsible
for non-performance, nor does he thereby lose his rights under the contract (Sec 38)

(4) Discharge by Refusal of a Party to perform promise wholly or discharge by breach


(Sec 39)- When a party to a contract has refused to perform, or disabled himself from performing
his promise in its entirety the promisee may put an end to the contract, unless he has signified
(by words or conduct), his acquiescence in its continuance. Sec 39

Forms of discharge by breach


(a) By renunciation of liability before performance is due. There are two limitations to this

(1) It must relate to the whole performance,

(2) It must be treated as a discharge (Sec.39)

(b) By impossibility created by one party before performance is due.

(c) By renunciation in the course of performance. E.g. where a purchaser of 100. Bales, after
accepting delivery of 50 bales, refuses to accept the remaining 50, the seller is discharged and
can sue for damages.

(d) By impossibility created by one party in the course of performance. E.g. where a party puts it
out of his power to continue performance of his promise.

(e) By failure of performance, which may be of the whole of the promise or of a part of it, e.g. in
case of delivery and payment by installments.

(5) Discharge by the Act to be performed under the contract becoming impossible or
unlawful (Sec 56)

(6) Discharge by Agreement and Novation (Sec 62) Deals with the effect of rescission or
alteration of a contract. It runs thus if the parties to a contract agree to substitute a new contract
for it, or to rescind or alter it, the original contract need not be performed.

For examples.

(a) A owes money to B under a contract. It is agreed between A, B and C, that B shall
thenceforth accept C as his debtor. Instead of A, the old debt of A to B is at an end, and a new
debt from C to B has been contracted.

Doctrine of Novation The term novation has been thus defined by the House of Lords
That, there being a contract in existence. Some new contract is substituted for it either between
the same parties or between different parties, the consideration being mutually the discharge of
the old contract In India, there is novation when the parties are changed or the nature of the
obligation is changed.
Forms of novation The parties to a contract may substitute new terms for the old ones, as
indicated by illustration.

(a) In the former case, there is a substitution of new terms for the old ones while the parties
remain the same. In the later case, a new party is substituted for old one. In both the cases, the
old debt is at an end, and a new one takes its place, the old contract is replaced by a new contract.

(b) It may be agreed between the original promisor, the original promise and a third party that
the promise will look to the third party, instead of the original promisor, for the performance of
the contract as in illustration.

Effect of Novation In cases where there is a novation, the old contract is completely,
extinguished, and a suit based on it is not maintainable.

(5) Discharge by waiver of contract Sec 63 a contract may also be discharged by way of
waiver, i.e. by the promisee dispensing with or remitting the performance of the promise made to
him. Sec 63 provides that every promisee may

(1) Dispense with the performance of the promise made to him

(2) Remit wholly or in part.

(3) Extend the time for such performance.

(4) Accept, instead at it, any satisfaction which he thinks fit.

For examples (a) A promises to paint a picture for B, B, after wards forbid him to do so, A is
no longer bound to perform the promise.

Quantum Meruit

Ordinarily, if a person, having agreed to do some work or render some services, has done only a
part of what he was required to do, he cannot claim anything for what he has done. When a
person agrees to complete some work for a lump sum, non-completion of the work does not
entitle him to any remuneration even for the part of the work done. But the law recognizes an
important exception to this rule by way of an action for Quantum Meruit.

Synopsis

Anticipatory Breach of Contract


Types of Breach of Contract
Remedies for Breach of contract
Declaratory Decrees
Discretion of the Court
Effect of declaration

Meaning of Anticipatory Breach of Contract: - Anticipatory breach occurs when the party
declares his intention at not performing the contract before the performance is due. Thus, when a
party refuses to perform a contract even before it is due for performance. It is called anticipatory
breach. A remedy is the means give by law for the enforcement of a right.

Types of Breach of Contract

There are two types of Breach of contract namely.

(1) Actual beach

(2) Anticipatory or Constructive breach.

Remedies for Breach of contract

(1) Rescission of the Contract (Sec-39)

(2) Suit for damages (Sec-73)

Principal of damages

(1) The compensation can be claimed only from the party who has broken the contract.
(2) If a quasi contract is broken, the aggrieved party is entitled to receive the same
compensation from the defaulting party as would be party is entitled to receive the same
compensation from the defaulting party to such in case of any other contract.

(3) The aggrieved party is entitled to claim compensation only when he has suffered some loss or
damage by the breach of the contract.

(4) The compensation can also be claimed for any loss or damage which the parties. Knew, at the
time of making the contract to be likely to result from the breach of the contract, in other words,
special damages are also recoverable.

Rules regarding the Damages

1. The ordinary damages are recoverable.

2. The remote damages are not recoverable.

3. The aggrieved party is entitled to damages even if a quasi contract is broken.

4. The nominal damages may be awarded at the discretion of the court.

5. The damages for loss of reputation are not generally recoverable.

Suit for a Quantum Meruit

Quantum Meruit means As much as he has earned. Thus quantum Meruit means that a person
can recover compensation in Proportion to the part to work done by him. If a contract comes to
an end and one party has already performed a part of it. He is entitled to claim compensation for
the part he has performed.

Suit for specific performance Specific performance means to carry out actual obligations as
per the terms of contract. When damages are not an adequate remedy for breach of contract. The
court can insist on the parties to carry out their agreement. It is important that specific
performance cannot be claimed as a matter of right and the courts are always at discretion to
grant the relief by specific performance.
Examples A, an author contracted with B to write a book him. Later on A refused to write
the book, here B cannot obtain the specific performance of the contract as it involves the
personnel qualification of A.

Suit for injunction Suit for injunction means demanding courts stay order. Injunction means
on order of the Court which prohibits a persons to do a particular act. Where a party to a
contract does something which he promised not to do. The court may sue an order prohibiting
him from doing so.

Example A, a dancer, agrees to dance at B.s hotel at certain rid. She also agrees that during the
prescribed period she will not dance at any other hotel, later on, contracts with to dance at his
hotel and refuses to dance at B.s hotel B files a suit for restraining A from dancing at its hotel.
Here, although A cannot compelled to dance at B.s hotel, but she can be retrained by injunction
from dancing at C.s Hotel.

Modes of the performance of contract - there are following six rules.

1. Where no time is specified and no application is to be made S.46.

2. Time and place of performance where time is specified but no application is to be made
Sec47.

3. When performance to be made on certain day at proper time and place.

4. Where no place is fixed and no application is to be made for performance.

5. Performance to be made in manner or at time prescribed or sanctioned by the promise.

(1) Where no time is specified and no application is to be made Sec 46 says that Where by
the contract a promisor is to perform his promise without application by the promise and no time
for performance is specified the engagement must be performed within a reasonable time.

(2) Time and place of performance where time is specified but no application is to be made
Sec 47 - Provides when a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application by the promise, the promisor may perform it at any
time during the usual hours of business on such day and at the place at which the promise ought
to be performed

Example A promises to deliver goods at B.s warehouse on the Ist January. On that day A bring
to B.s ware house but after the usual hour from closing it and they are not received. A has not
performed his promise.

(3) When performance to be made on certain day at proper time and place - Duty of
promise to apply for performance Sec 48 of the Act, When a promise is to be performed on a
certain day, and the promisor has not undertaken to perform it without application by the
promise, it is the duty of the promise to apply for performance at a proper place and within the
usual hours of business.

(4) Where no place is fixed and no application is to be made for performance Duty of
Promisor to apply to promise to appoint place Sec 49 When a promise is to be performed
without application by the Promisee and no place is fixed for the performance of it, it is the duty
of the Promisor to apply to, the Promisee to appoint a reasonable place for the performance of
the promise and to perform it at such place.

Example: - P undertakes to delivers one thousand mounds of jute to M on fixed day. P must
apply to B to appoint a reasonable place for the Purpose of receiving it, and must deliver it to
him at such place.

(5) Performance to be made in Manner or at time Prescribed or Sanctioned by the


Promisee Sec-50 The Promisor is bound to perform the Promise in any manner or at any time
which the promise prescribes or Sanctions. Example: - A owes B 2000 rupees B accepts some of
A.s goods in deduction of the debt. The delivery of the goods operates a part payment.

Cases

(1) Branch Manager, State Bank of Mysore v. K. Amarnath, AIR 2003 Kant 202.

(2) Jai Durga Finvest Pvt. Ltd v. State of Haryana AIR 2004 S.C. 1484

(3) Ceean International Private Limited v. Ashok Surana, AIR 2003 Cat. 263
(4) F.C.I v. Anupama Warehousing Establishment, AIR 2004 Ker. 137

(5) R.K Saxena v. Delhi Development Authority AIR 2002 S.C 2340

Declaratory Decrees

A person entitled to any legal character or any right as to any property1 may seek a declaration
from a court to that effect so that there is no adverse attack which could weaken that legal
character or title.2 the declaration could be sought under Section 34, which reads as under 34.
Discretion of court as to declaration of status or right. Any person entitled to any legal
character; or to any right as to any property, may institute a suit against any person denying, or
interested to deny, his title to such character or right, and the court may in its discretion make
therein a declaration that he is so entitled, and the plaintiff need not in such suit ask for any
further relief:

In order to get relief by way of a decree the following essentials are to be proved by the
plaintiff:

(1) That at the time of the suit the plaintiff was entitled to

(i) Any legal character;

(ii) To any right as to any property

What has to be proved is that the plaintiff was entitled to either the legal character, or to any right
as to any property and either of them exclusively can be the basis of the suit.4 A declaration
under Section 34 cannot be sought for a declaration regarding the subsistence of a contract
between the parties as the same neither relates to any legal character, nor any right to property.5

(2) The suit can be instituted against any person denying or interested in denying the plaintiffs
right to any legal character, or to any right as to any property.

A trustee of property is a person interested to deny a title adverse to the title of someone who
is not in existence, and for whom, if in existence, he would be a trustee. The above mentioned
provision may be explained through the following illustrations7:
(a) A is lawfully in possession of certain land. The inhabitants of a neighboring village claim a
right of way across the land. A may sue for a declaration that they are not entitled to the right so
claimed.

Effect of declaration (Section 35)

According to Section 35, a declaration made under this Chapter is binding only on the parties to
the suit, persons claiming through them respectively, and where any of the parties are trustees, on
the persons for whom, if in existence at the date of the declaration, such parties would be
trustees. The declaration operates as a bar only between the parties to the suit and their privies. It
is not binding on her persons. The provision may be explained through the following
illustration17

A a Hindu in a suit to which B, his alleged wife, and her mother, are defendants, seeks a
declaration that his marriage was duly solemnized and an order for the restitution of his conjugal
rights. The Court makes the declaration and order. C, claiming that B is his wife, then sues A for
the recovery of B. The declaration made in the former suit is not binding upon C.

IN SNP Shipping Services Pvt. Ltd. v. World Tanker Carrier Corp., AIR 2000 Bom.34 it has
been held that by virtue of Section 35 of the Specific Relief Act, declaration given under Section
34 is binding only between the parties. It is a declaration in personam, and notinrem.

Cases

(1) Branch Manager, State Bank of Mysore v. K. Amarnath, AIR 2003 Kant 202.
(2) (2) Jai Durga Finvest Pvt. Ltd v. State of Haryana AIR 2004 S.C. 1484
(3) (3) Ceean International Private Limited v. Ashok Surana, AIR 2003 Cat. 263

(4) F.C.I v. Anupama Warehousing Establishment, AIR 2004 Ker. 137

(5) R.K Saxena v. Delhi Development Authority AIR 2002 S.C 2340

Exercise
Q.1 Define the Anticipatory Breach of Contract. What are the remedies available on a
breach of contract?

Q.2 Discuss the modes of performance of contract.

Q.3 what are the various modes of discharge of a contract.

Q.6 what is Contingent contract?

Q.7 What is Quantum Meruit ?

Q.8 what is Declaratory Decrees?

Standard Form Contracts :


An Introduction

Standard form Contracts are take it or leave it contracts i.e a contract signed between two parties
that has no room for negotiation. The customer is in no position to renegotiate the standard terms of
the contract and the companys representative usually does not have the authority to do so. Such
contracts are also known as- Contracts of adhesionwhich means that the individual has no choice
but to accept; he does not negotiate, but merely adheres, Compulsory Contracts, they being a
kind of imposition; and Private Legislation, they being a kind of code of bye-laws on the basis of
which the individual can enjoy the services offered.
For large organizations, it is very difficult to draw up a separate contract with every individual. As
Kessler puts it Therefore, they keep printed forms of contract i.e SFCs containing a large number of
terms and conditions in fine-print which restricts and often excludes the liability of the other party
under the contract. Briefly, one can say that the SFCs have arisen as a result of:
a) The convenience in having a printed form;
b) The fact that one party stands in a position where the terms dictated by it can be imposed upon the
other, notwithstanding the will of the other, and since the terms of such bargains are known to the
former even prior to the entry into the contract, the former prints it out and keeps it ready, waiting for
the persons to come forward and enter into such contracts; and
c) The willingness of the customer to allow the provider and his or her perceptions as to the
likelihood of the contract being enforced to the latter.

III. Reasons For Acceptance Of Standard Form Contracts:


There are a number of specific reasons why such terms and conditions laid down in the contract are
accepted, which are as follows:
a) SFCs are rarely read: Such contracts are always printed in fine print and written in complicated
legal language which most of the times seems irrelevant to the common mass. And such contracts are
always on take it or leave it basis. Coupled with the large amount of time needed to read the terms,
the expected payoff from reading the contracts is low and very few people read it.
b) Access to the full terms may be difficult or impossible before an acceptance: Often the document
being signed is not the full contract; the purchaser is told that the rest of the terms are in another
location. This reduces the likelihood of the terms being read and in some situations, such as software
license agreements, can only be read after they have been notionally accepted by purchasing the good
and opening the box.
c) Boilerplate terms are not salient: The most important terms to purchasers of a commodity are the
price and quality which is generally understood before the SFC is signed so the other terms which
may be exploitative in nature are not read at all.

d) There may be diverse social pressure to sign: SFCs are signed at a point when the main details of
the transactions have either been negotiated or explained. Social pressure to conclude the bargain at
that point may come from a number of sources. For eg. If the purchaser is in front of a queue there is
additional pressure to sign quickly or the salesperson may imply that the additional terms are just
something that lawyers want us to do, and in a hurry the purchaser concludes the transaction by
signing the SFC.

e) SFCs may exploit unequal power relations: If the commodity which is being sold using a SFC is
an essential one for the purchaser or appeals to the purchaser such as a rental property or a needed
medical item, then again the take it or leave it condition has an impact and the purchaser in many
cases has no choice but to buy that commodity.

Contractual liability of government


In the modern era of a welfare state, government's economic activities are expanding and the government
is increasingly assuming the role of the dispenser of a large number of benefits. Today a large number of
individuals and business organisations enjoy largess in the form of government contracts, licenses,
quotas, mineral rights, jobs, etc. The paper discusses the origin as well as current position of
government contract in other countries like the UK, US etc. and then subsequently moves on to the
Indian perspective. It analyses the position of governmentcontracts in India, their statutory as well as
judicial recognition and the liabilities on the State owing to the said recognition. Furthermore, the paper
discusses various common law principles that govern the contractual liability of the State and make it a
necessity in the modern times. The paper criticises the role of the executive and the legislative organs of
the government and concludes that there is a necessity to develop some norms to regulate and protect
individual interest in such wealth and thus structure and discipline the government discretion to confer
such benefits.

Introduction

Contractual Liability of the State

In modern state, whatever be the form of government, the individual is affected in his everyday life and in
the exercise of his civil rights by acts of the State and its officials in various spheres and in different ways.
Some of these acts are done by the State as the sovereign while others are done by the State in trading
and other capacities in the same manner as a private individual does. 1

Hence, the subject of government contracts has assumed great importance in the modern times. In the
modern era of a welfare state, government's economic activities are expanding and the government is
increasingly assuming the role of the dispenser of a large number of benefits. Today a large number of
individuals and business organisations enjoy largess in the form of government contracts, licenses,
quotas, mineral rights, jobs, etc. This raises the possibility of exercise of power by a government to
dispense largess in an arbitrary manner. Therefore, there is a necessity to develop some norms to
regulate and protect individual interest in such wealth and thus structure and discipline the government
discretion to confer such benefits.

A contract is an agreement enforceable by law, which offers personal rights, and imposes personal
obligations, which the law protects and enforces against the parties to the agreement. The general law
of contract is based on the conception, which the parties have, by an agreement, created legal rights
and obligations, which are purely personal in their nature and are only enforceable by action against the
party in default.2 Section 2(h) of the Indian Contract Act,1872 defines a contract as "An agreement
enforceable by law". The word "agreement" has been defined in Section 2(e) of the Act as "every promise
and every set of promises, forming consideration for each other." A contract to which The Central
Government or a State Government is a party is called a "Government Contract".

Government contracts have been accorded Constitutional recognition 3. The Constitution, under Article
2984, clearly lays down that the executive power of the Union and of each state extends to "the carrying
on of any trade or business and to the acquisition, holding and disposal of property and the making
of contracts for any purpose". The Constitution therefore, provides that a government may sue or be
sued by its own name. A similar provision is found in the Code of Civil Procedure 1908 under Section 79 5.