INDIAN CONTRACT ACT 1872

Assignment Report MPE 2010-12 Div B

Presented by, Sumesh Shetty 147 Sunil Dwivedi 148 Vaishali Suvarna 150 Vikas Sharma 151 Vineet Badiani 152 Vishal Jain 153 Wasif Raza 154

Approved by, Prof. Prasen Naithani

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Table of Contents
1 Indian Contract Act - An Introduction .....................................................................3 2 Proposal (Offer).......................................................................................................4 3 Acceptance...............................................................................................................6 4 Free Consent............................................................................................................6 5 Consideration.........................................................................................................11 6 Stranger to Contract & Capacity to Contract...........................................................14 7 Classification of Contract........................................................................................16 8 Types of Contract...................................................................................................16 9 Discharge of Contract.............................................................................................24 10 Remedies for Breach of Contract...........................................................................27

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Indian Contract Act - An Introduction

The Indian Contract Act is the foundation of Business Law. This is because most of the business transactions are based on contracts. Entering into business transaction can have the implication of one or both the parties escaping their obligations. To protect the interest of both the parties and to ensure fair business practices the Indian Contract Act came into effect in 1872. The Contract Act creates an obligation between the parties to the contract and not against the whole world. Thus, it creates right in personam and not right in rem. ''Right in personam'' means a right against a particular person. ''Right in rem'' on the other hand is available against the whole world.

1.1 Definitions
Contract is define as an agreement enforceable by law. Agreement is defined as every promise and every set of promises forming the consideration for each other. An agreement needs the following essentials: A proposal/offer An acceptance A promise A consideration for the promise

Proposal or Offer: When a 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. For example, A offers to sell his book to B. A is making an offer to do something, i.e., to sell his book. It is a positive act on the part of the proposer. Promise: An Offer when accepted, becomes a Promise of the offer. Acceptance: When a person to whom the proposal is made , signifies his assent thereto, the Proposal is said to be Accepted. Promisor & Promisee: The person making the proposal is called the Promisor, and the person accepting the proposal is called Promisee.

1.2 Essentials of a valid contract

Below are the essentials of a valid contract: 1. The agreement should be between two parties. An agreement is the result of a proposal or offer by one party followed by its acceptance by the other. 2. The agreement should be between the parties who are competent to contract.

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3. There should be a lawful consideration and lawful object in respect of that agreement. 4. There should be free consent of the parties, when they enter into the agreement. 5. The agreement must not be one, which has been declared to be void by law.

Proposal (Offer)

When one person signifies to another his willingness to do or not to do something, this would be called a proposal or an offer. However, the person, making the proposal, must intend to obtain the other persons assent. The willingness to do or abstain from doing something, i.e. the proposal or offer must be made with a view to obtain the assent of the other party thereto. For example, As willingness to sell his radio set to B for Rs. 500 if B accepts to purchase the same, amounts to proposal by A for the sale of the radio set. But if a statement is made without any intention to obtain the assent of the other party thereto that cannot be termed as proposal. A proposal must be definite. Also, a proposal may be expressed or implied. An express proposal will be plainly laid out in specific terms. An implied proposal is a proposal that may be inferred from the actions or conduct of the person. Thus, when you buy a railway or bus ticket, you are making an implied proposal to be transported to a certain place.

2.1 Invitation to an offer

Another important feature is the distinction between a proposal or offer and an invitation to an offer. An invitation to offer is merely that- an invitation. It is a stage of preliminary negotiation and does not constitute a valid proposal. Thus, when a shop owner displays certain goods in his shop window or, advertises in a magazine, he is merely making an invitation to offer. It is only after the prospective customer enters the shop and asks to buy a certain item that an offer is made for the first time by the buyer.

2.2 Communication of proposal

An offer when accepted results in a contract. An offer can be accepted only after the same has come to the knowledge of the offeree. It means that the offer has to be communicated to the offeree in order that the offeree can accept it. According to section 4, the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. If an offer has not yet been communicated, even if somebody acts according to the terms of the offer, he cannot be deemed to be the acceptor of the offer. Acting in ignorance of an offer does not amount to the acceptance of the same. This point may be explained by referring to the below case.

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Case Law: Lalman Shukla Vs. Gauri Dutt. In this case Lalman Shukla was the employee of Gauri Dutt.When GauriDutts nephew was missing he sent Lalman to search for him.Latter he announced that whoever finds his nephew would be awarded Rs 501.Lalman did not know about this announcement.As per the earlier instructions he found Gauri Dutts nephew & brought.He had no right on the reward because he had no knowledge of Gauri Dutts proposal.

2.3 Revocation Of Offer

It is only after the acceptance of an offer that there arises a contract and then both the parties becomes bound by their respective promises. Before the offer has been accepted it can be revoked. After the offer has been accepted it ripens into a contract and then it cannot be revoked. According to Section 5 : A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. In case of sale by auction the bids made at the auction are offers, and the highest offer may be accepted by the auctioneer. In such a case the sale is complete when the auctioneer announces its completion by the fall of the hammer or in any other customary manner ; and , until such announcement is made, any bidder may retract his bid. A proposal is revoked (1) by the communication of notice of revocation by the proposer to the other party. (2) by the lapse of 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 fulfil a condition precedent to acceptance. (4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.

2.4 Cross-Offer
Where two parties make identical offers to each other, in ignorance of each others offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract. For example, on 1st January A offers to sell his radio set to B for Rs. 500/- through a letter sent by post. On the same date B also writes to A making an offer to purchase As radio set for Rs. 500 /- When A or B send their letters they do not know about the offer which is being made by the other side. In these cross offers, even though both the parties intend the same bargain, there arises no contract. A contract could arise only if either A or B , after having the knowledge of the offer, had accepted the same.

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Acceptance

According to sec.2(b), when a person made a proposal to another to whom proposal is made, if proposal is assented there to, it is called acceptance. The acceptor can revoke the acceptance at any time before the proposer knows about it. However, the proposer's rights of revocation are limited to the time at which the acceptor puts the acceptance in a course of transmission to him. Eg:''A writes to B proposing to buy his car for the sum of Rs. 3 lakhs. B writes back, accepting this offer. Now, B can revoke his acceptance at any time before A comes to know of it. However, A can only revoke his proposal before B actually posts the letter of acceptance. Thus, as far as B is concerned, the agreement is complete as soon as A posts the letter.''

3.1 Legal rules for acceptance

Acceptance must be absolute and unqualified. Acceptance must be in the prescribed manner. If the offer is not accepted in the prescribed manner, then the offeror may reject the acceptance within a reasonable time. Acceptance must be communicated to the offeree. If acceptance is communicated to the person, other than the offeror, it will not create any legal relationship. Acceptance must be given by the party to whom the offer is made. Acceptance must be given within the prescribed time or within a reasonable time. Acceptance cannot be given before communication of an offer. Acceptance must be made before the offer lapses or is withdrawn. Acceptance must show intention to fulfil the promise. Acceptance cannot be presumed from silence. Doing of desired act amounts to acceptance.

Free Consent

Two or more persons are said to consent when they agree upon the same thing in the same sense. In order to constitute a contractual agreement, it is essential that the consent to such agreement is obtained freely. Section 14 of the Indian Contract Act defines free consent wherein it has been stated: Consent is said to be free when it is not caused by -

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1. Coercion 2. Undue influence 3. Fraud 4. Misrepresentation 5. Mistake

4.1 Coercion
Coercion in English Law is termed as 'Duress' or 'Menace' Section 15 of the Indian Contract Act states "Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Thus, the essential features of an act of coercion are: Committing or a threat to commit an act forbidden by the Indian Penal Code. Unlawfully detaining or a threat to detain any property. An act which is to the prejudice of any person.

It can be mentioned here that it is immaterial whether the India Penal Code was or was not in force in the place where the act of coercion was said to have been committed. Coercion may be in the form of showing fear or any physical compulsion or threat to goods. However, the intention of the person involved in the act of coercion, must be to compel any person to enter into a contractual agreement. Even a threat to commit suicide is considered as an act amounting to coercion. Case Law : Chikkim Ammiraju vs. Seshamma: In this case a person threatened his wife and son that he would suicide if she doesnt transfer her property in his brothers favor. The wife and son executed the release of the deed under the threat . Held the threat of suicide amounted to coercion within Sec 15 and the release deed was therefore voidable. This also is a very important case to prove that threat to commit suicide amounts to coercion. Case Law: Ranganayakamma vs. Alwar Setty: A young widowed girl of 13 years was forced to adopt a boy by her relatives who prevented the removal of his body for cremation until she consented. Held the consent was not free but was induces by coercion. Consequently the adoption was set aside.

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4.2 Undue Influence

A contract is said to be induced by undue influence where the relations, subsisting between the parties, are such that one of the parties is in a position to dominate the will of the other and uses the position to obtain an unfair advantage over the other. A person is deemed to be in a position to dominate the will of another Where he holds a real or apparent authority over the other or Where he stands in a fiduciary relation to the other or

Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress Where a person who is in a position to dominate the will of another enters into a contract with him, and the transaction appears, on the face of it or on evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. There is an undue influence between the following persons: Principal and agent Superior and subordinate Doctor and patient Father and son Teacher and student Promoter and company Master servant Spiritual advisor and devotee

Case Law: Raniannapurna vs. Swaminathan A poor Hindu widow was persuaded by a money lender to agree to pay 100% rate of interest on money lent by him. She needed the money to establish her right to maintenance. It was a clear case of undue influence and the court reduced the rate of interest to 24%.

4.3 Fraud
Fraud is said to take place when a person commits any act with the intention of deceiving another or, to induce another person to enter into a contract and includes the following: Positively suggesting something which is not true.

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Actively concealing a fact of which he has knowledge. A promise made without any intention of performing it. Any other act fitted to deceive. Any act declared to be fraudulent under law.

4.4 Mis-Representation
Here, the test is intention to deceive. The law also includes facts, which the person making the statement believes to be true. The key test here is that there is an absence of intention to deceive. This is really the major (if not only) difference with respect to 'fraud.' The law recognises the following as acts of misrepresentation: A positive statement of something, which is not true but, which, the person, making it, believes to be true. A breach of duty, which is committed without an intention to deceive, by which, the person committing it, gets an advantage. Any act which causes, although innocently, a party to the agreement to make a mistake as to the substance of the agreement.

It, as can be seen, misrepresentation refers to what can be called as reckless statements or a failure to execute a duty. Case Law:Babul vs. R.A. Singh M was a marriage broker who gave Y the photograph of a man and told him that the man was young and rich. Y conveyed the same to his daughter who agreed for the proposal. But on the day of marriage it was discovered that the man was the age of 60. There is fraud between M and Y. whereas the is misrepresentation between Y and his daughter.

4.5 Mistake
Mistake may be defined as an erroneous belief concerning something. A mistake in the nature of miscalculation or mistake of error of judgement by one or both the parties has no effect on the validity of the contract. For eg: If A pays an excessive price for goods under a mistake as to their true value, the contract is binding on him. Therefore, mistake must be vital operative mistake i.e. it must be a mistake of fact which is fundamental to contract. To be operative so as to render the contract void, the mistake must be: of fact and not of law or opinion

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the fact must be essential to agreement i.e. so fundamental as to negative the agreement and must be on part of both the parties.

Mistake is of two kinds: 1. Mistake of law 2. Mistake of fact A) Mistake of law: Mistake of law may be: a) Mistake of Law of the Land, and b) Mistake of Foreign Law: a) Mistake of law of the Land: In this regard, the rule is ignorance of law is no excuse. Section 21 of the Indian Contract Act, 1872 declares that A contract is not voidable because it was caused by a mistake as to any law in force in India. If there is a mistake of law of the land, the contract is binding because everyone is deemed to have knowledge of law of the land. b) Mistake of Foreign Law: The maxim that ignorance of law is no excuse applies only to the law of the country and not to foreign law. The mistake of foreign law is to be treated as a mistake of fact. Section 21 of the Indian Contract Act, 1872 reads, A mistake as to a law not in force in India has the same effect as a mistake of fact. So, mistake of foreign law makes the contract void. B) Mistake of fact: Mistake of fact can be Bilateral Mistake and Unilateral Mistake. a) Bilateral Mistake: When both the parties to the agreement are under a mistake of fact essential to the agreement, the mistake is called a bilateral mistake of fact and the agreement is void. Example: A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void Case Law: Case Law: Courturier v. Hastic A and B entered into a contract for the sale and purchase of Indian corn supposed to be on board a particular ship bound for England. Unknown to both parties the corn was damaged and discharged at an intermediate port, some days prior to the contract. The contract was held to be void on the ground of mistake.

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b) Unilateral Mistake: The general rule is that a person who signs an instrument is bound by its terms even if he has not read it. In the case of unilateral mistake, i.e., where only one party to a contract is under a mistake, the contract, generally speaking is not invalid. Section 22 of Indian Contract Act reads, A contact is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

Consideration

When a party to an agreement promises to do something he must get something in return .This something is defined as consideration. According to sec 2(d) consideration is defined as when at the desire of the promisor , or 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 an act or absinence or promise is called a consideration for the promise . Thus, consideration forms an essential part of an agreement without which the agreement is void. This is because, in the absence of consideration, there is no legal obligation formed between the parties and, therefore, in such a scenario, they are not bound by the terms of the agreement. Eg: A agrees to sell his house to B for Rs. 10,000. Here Bs promise to pay the sum of Rs. 10,000 is consideration for As promise to sell the house; and As promise to sell the house is the consideration for Bs promise to pay Rs. 10,000. Consideration is another essential for a contract to be valid. A promise without consideration is purely gratuitous and, however sacred and binding in honour it may be, cannot create a legal obligation. The general rule is No consideration, no contract.

5.1 Rules as to Consideration

1. Consideration must move at the desire of the promisor : Accordingly, an act done at the desire of a third party is not a consideration. Case Law: Durga Prasad v. Baldeo D constructed a market at the instance of the Collector of a District. The occupants of the shops in the said market promised to pay D a commission on articles sold through their shops. It was held there was no consideration because the money was not spent by the plaintiff at the request of the defendants, but voluntarily for a third person and thus the contract was void. Further, although the promisee must give consideration at the desire of the promisor, it is not necessary that the promisor himself should benefit by the consideration. The promise would be valid even if the benefit accrued to a third party.

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Case Law: National Bank of Upper India v. Bansidhar A owed Rs. 20,000 to B. He (A) persuaded C to sign a promissory note in favour of B. C promised B that he would pay the amount. On the faith of promise by C, B credited the amount to As account. It was held that the discharge of As account was consideration for Cs promise. 2. Consideration may move from the promisee or any other person: Although it is necessary that consideration must move at the desire of the promisor, it may be supplied either by the promisee or any other person.

Case Law: Chinnayya v. Ramayya: A, a lady, by a deed of gift transferred certain property to her daughter, with a direction that the daughter should pay an annuity to As brother, as had been done by A. On the same day the daughter executed a writing in favour of the brother, agreeing to pay the annuity. Afterwards, she declined to fulfil her promise saying that no consideration had moved from her uncle (As brother). The Court, however, held that the words the promisee or any other person in Section 2(d) clearly show that the consideration need not necessarily move from the promisee, it may move from any other person. Hence, As brother was entitled to maintain the suit. 3. Consideration need not be adequate: Adequacy of consideration is always the lookout of the promisor. Courts do not see whether every person making the promise has recovered full return for the promise. But where a party pleads coercion, undue influence or fraud, inadequacy of consideration will also be a piece of evidence to be looked into. 4. Consideration must be real and competent: Consideration must be real. If it is illusory, e.g., if a man promises to discover treasure by magic, the transaction is void. 5. Consideration must be legal: Illegal consideration renders a contract void.

5.2 Exceptions to consideration

1. Mutual Love & Affection: Any agreement, made without consideration, is valid if it is made on account of natural love and affection between the parties, standing in near relation to each other, provided it is expressed in writing and it is registered under the law. P, for natural love and affection, promises to give his son V, Rs. 50, 000. P. puts this promise in writing and registers it. This is a contract. Case Law: of Rajlukhy vs Bhootnath In case of Rajlukhy vs Bhootnath it was held that there did not exist any love and affection betn the parties, the agreement to pay maintenance allowance by the husband to his wife was held to be void for want of consideration on part of the wife. 2. Promise to compensate for something done: Any agreement, made without consideration, is valid if it is a promise to compensate a person, who has already voluntarily done something for the person making the promise.
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S undertook to pay for the education of R while the latter was a minor. When R attained the age of 25, he promised to give S. Rs. 25000/- out of gratitude. This promise is binding on R. 3. Promise to pay a debt, barred by Limitation law: Any promise, made in writing and signed to pay a debt, is binding on the person signing it even though it may be barred by the law of limitation. S owes N Rs.10, 000, but debt is barred by the Limitation Act. However, S. signs a written promise to pay N. Rs 5000 towards this debt. This is a contract. Case Law: TulsiRam vs Same singh : After the defendant made an endorsement on the back of the cheque stating I accept this pronote and it is valid for the next 3 yrs. It was held that these words were only an acknowledgement of the existence of the note & did not indicate whether the defendant intend to pay the debt. Hence the defendant could not be made liable on the basis of the this endorsement

5.3 Legality of Objects & Consideration

One of the requisites of a valid contract is that the object should be lawful. An agreement will not be enforceable if its object or the consideration is unlawful. According to Section 23 of the Act, the consideration and the object of an agreement are unlawful in the following cases: 1. If it is forbidden by law: If the object or the consideration of an agreement is the doing of an act forbidden by law, the agreement is void. An act or an undertaking is forbidden by law when it is punishable by the criminal law of the country or when it is prohibited by special legislation derived from the legislature. For example, A promises to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful. Case Law: Srinivas v. Raja Ram Mohan A loan granted to the guardian of a minor to enable him to celebrate the minors marriage in contravention of the Child Marriage Restraint Act is illegal and cannot be recovered. 2. If it is of such a nature that if permitted, it would defeat the provisions of any law: If the object or the consideration of an agreement is of such a nature that, though not directly forbidden by law, it would defeat the provisions of the law, the agreement is void. For example, As estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser and agrees to convey the estate to A upon receiving from him the price which B has paid. The agreement is void, as it renders the

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transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law. 3. If it is fraudulent: An agreement with a view to defraud other is void. For example, A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud.The agreement is void as its object is unlawful. Another example of fradulent object, A, being an agent for a landed proprietor, agrees, for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void as it implies a fraud by concealment by A, on his principal. 4. If it involves or implies injury to the person or property of another: If the object of an agreement is to injure the person or property of another it is void. Eg:An agreement between some persons to purchase shares in a company with a view to induce other persons to believe, contrary to the fact, that there is a bona fide market for the shares is void. 5. If the Court Regards it as Immoral or Opposed to Public Policy: An agreement whose object or consideration is immoral or is opposed to the public policy, is void. For example, A, who is Bs mukhtar, promises to exercise his influence, as such, with B in favour of C and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral. Case Law: Pearce v. Brooks: A let a cab on hire to B, a prostitute, knowing that it would be used for immoral purposes. The agreement is void.

Stranger to Contract & Capacity to Contract

6.1 Stranger to Contract

It is general rule of contract that only parties to contract can sue & be sued on that contract.This rule is known as Doctrine of privity i.e relationship between the parties to contract .The doctrine states that the parties to a contract are the only ones who can enforce and benefit from the terms of the contract. Case Law:Dunlop Pneumatic Tyre Co.Ltd vs Selfridge Dunlop made tyres. It did not want them sold cheaply but to maintain a standard resale price. It agreed with its dealers (in this case Dew & Co) not to sell them below its recommended retail price. It also bargained for dealers to get the same undertaking from a purchaser. If retailers did sell below the list price, they would have to pay 5 a tyre in liquidated damages to Dunlop. Dunlop thus was a third party to a contract between Selfridge and Dew. When Selfridge sold the tyres at below the agreed price, Dunlop sued to enforce the contract by injunction and claimed damages. Selfridge argued it could not enforce the burden of a contract between itself and Dew, which Selfridge had not agreed to.

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At trial, the judge found in favour of Dunlop. In appeal the damages and injunction were reversed, saying that Selfridge was not a principal or an agent and thus was not bound. The issue put to the court was whether Dunlop could get damages from Selfridge without a contractual relationship.

6.2 Capacity to Contract

Another essential of a valid contract is that the parties to the contract should be capable to enter into the contract. Section 11 provides that Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. Following are the condition for a person to enter into contract He must be major He must be in sound state of mind He must not be disqualified by any other law. o o o o alien enemy insolvent convict company/corporation against MOA / AOA

Case Law: Mohiri Bibi v. Dharmodas Ghose Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of which the lender paid the minor a sum of Rs. 8,000. The minor executed mortgage of property in favour of the lender. Subsequently, the minor sued for setting aside the mortgage. The Privy Council had to ascertain the validity of the mortgage. The Transfer of Property Act, provides that every person competent to contract is competent to mortgage. The Privy Council decided that Sections 10 and 11 of the Indian Contract Act make the minors contract void. The mortgagee prayed for refund of Rs. 8,000 by the minor. But the Privy Council held that as a minors contract is void, any money advanced to a minor cannot be recovered. Case Law: Inder Singh vs Parmeshwardhari Singh In the given case on death of his father , the defendant (Inder Singh) executed a deed of sale of certain property for a consideration of Rs 5,000 even though the property to be sold was worth Rs 25,000.The mother pleaded that her son was of unsound mind & was incapable of making rational decision, the transaction was void.It was held that the sale deed executed would not confer any title.

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Classification of Contract

The contracts are classified as shown below:

Types of Contract

8.1 Contingent Contracts

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract does or does not happen. If the event becomes impossible, such contracts become void. Eg: 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 the horse. The contract cannot be enforced by law unless and until C refuses to buy the horse. Essentials of a contingent contract: 1. The performance of a contingent contract is made dependent upon the happening or nonhappening of some event. 2. The event on which the performance is made to depend, is an event collateral to the contract, i.e., it does not form part of the reciprocal promises which constitute the contract.

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For example, A promises to pay B Rs. 10,000 if he marries C, it is not a contingent contract. 3. The contingent event should not be the mere will of the promisor. For example, A promises to pay B Rs. 1,000, if he so chooses, it is not a contingent contract. Rules Regarding enforcement of Contingent contract: 1. Contracts contingent upon the happening of a future uncertain event, cannot be enforced by law unless and until that event has happened. And if, the event becomes impossible such contract become void. For example, A makes a contract with B to buy Bs horse if A survives C. This contract cannot be enforced by law unless and until C dies in As life-time. 2. Contracts contingent upon the non-happening of an uncertain future event can be enforced when the happening of that event becomes impossible, and not before. For example, A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. 3. If a contract is contingent upon as to how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything, which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. For example, 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 C may afterwards marry B. 4. Contracts contingent upon the happening of a specified uncertain event 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. For example, A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year. 5. Contracts contingent upon the non-happening of a specified event 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 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. 6. 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. For example, A agrees to pay B Rs. 1,000 if two parallel straight lines should enclose a space. The agreement is void.

8.2 Contract of Indemnity

A contract, by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a contract of Indemnity. The person who gives the indemnity is called the indemnifier, and the person for whose protection it is given called the indemnity holder.

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Eg: A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 2000 rupees. This is a contract of indemnity Rights of the indemnity holder : The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor: 1. all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies 2. All costs which he may be compelled to pay in any such suit, if in bringing or defending it, he did not contravene the orders or the promisor and acted as it would have been prudent for him to act in the absence of any contract of indemnity, of if the promisor authorised him to bring or defend the suit. 3. All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.

8.3 Quasi Contract

There are certain types of contracts which do not fall under the categories of usual contracts. Under the Act, such contracts recognised certain relations, resembling those created by contract. The quasi contract is not a contract in its true sense. It creates the same rights and obligations as a normal contract would, even though there is no actual agreement between the parties. These obligations are created, by law, where it is thought that it is necessary for a just decision to be reached. Quasi contracts are based on Doctrine of unjust enrichment. Below are the types of Quasi contracts.

8.3.1 Supply of necessaries

If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another, person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person Eg: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property

8.3.2 Payment by interested person

A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.

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Eg:B holds land in city, on a lease granted by A. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of B's lease. B, to prevent the sale and the consequent annulment of his own lease, pays to the Government the sum due from A. A is bound to make good to B the amount so paid

8.3.3 Obligation to pay for non-gratuitous acts

When a person lawfully does or delivers anything for the other ,not intending to do so gratuitously, and the person derives any benefit from it,he is liable to compensate, or restore the thing so done or delivered. Here three conditions must satisfy The thing must have been done lawfully The person intending to do it must not have done it gratuitously The person must have derived benefit from the act

Case Law : Damodar Mudaliar vs State for India The govt undertook the repairs of an irrigation tank which was jointly owned by the govt & zamindar. Latter the govt sued the zamindar for his share of repairs.It was held that the govt had carried out the work not intending to do it gratuitously & hence the zamindar was liable to pay compensation.

8.3.4 Responsibility of finder of goods

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as the bailee is bound to take as much care of the goods as a man of ordinary prudence would,In addition to that he must make efforts to trace the owner. If he does not ,he will be guilty of wrong conversation, and till the owner is found out the property will vest with the finder, he can sell in case of goods are or perishable nature owner cannot be found out when owner refuses to pay for the lawful charges when the lawful charges amount to two thirds of thing

Case Law : Hollins vs Fowler Holins picked up a diamond from the floor of Flowers shop & handed it over to him to return to the true owner. The true owner was not located inspite of the best efforts of Flower. Hollins paid Flower the reasonable expenses incurred in locating the owner and asked him to return the
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diamond. However, Flower refused to do so. It was held by the court that Flower was bound to return the diamond to Hollins, as Hollins being in position of finder of the lost goods could retain the diamond against everyone except the true owner.

8.4 Quantum Merit

The phrase quantum merit literally means as much as earned. A right to sue on a quantum merit arises when a contract, partly performed by one party, has been discharged by breach of contract by the other party. This right is performed not on original contract but on implied promise by other party for what has been done. Eg: A (publication house owner) asks B (writer) to write articles in his periodical on daily basis for a fee of Rs 30,000 per month. But after 15 days A decides to discontinue his periodical. So B can sue A & get paid for the 50 % of the services he as rendered to A.

8.5 Wagering Contract

A wager contract is a contract in which one person promises to another to pay money or moneys worth by the happening of an uncertain future event in consideration for other persons promise to pay if the event does not happen. The essentials of a wagering agreement may thus be summarized as follows: (a) There must be a promise to pay money or money's worth. (b) The promise must be conditional on an event happening or not happening. (c) The event must be an uncertain one. If one of the parties has the event in his own hands, the transaction is not a wager. (d) Each party must stand to win or lose under the terms of agreement. An agreement is not a wager if one party may only win and cannot lose, or if he may lose but cannot win, or if he can neither win nor lose. (e) No party should have a proprietary interest in the event. The stake must be the only interest which the parties have in the agreement. Wagering Agreement Void and not Illegal. In India, unless the wager amounts to a lottery, which is a crime according to Section 294-A of the Indian Penal Code, it is not illegal but simply void. Thus, except in case of lotteries, the collateral transactions remain enforceable. Exceptions (Transactions Held Not Wagers): a) Transactions for the sale and purchase of stocks and shares, or for the sale and delivery of goods, with a clear intention to give and take delivery of shares or goods, as the case may be. Notice that, where the intention is only to settle in price difference, the transaction is a wager and hence void. b) Prize competitions which are games of skill, e.g., picture puzzles, athletic competitions.

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Case Law: Babalalteb v. Rajaram: An agreement to enter into a wrestling contest in which the winner was to be rewarded by the entire sale proceeds of tickets. It was held not to be wagering contract. c) An agreement to contribute a plate or prize of the value of above Rs. 500 to be awarded to the winner of a horse race.

8.6 Contract of Guarantee

A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the 'surety', the person in respect of whose default the guarantee is given is called the Principle-debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written." Essential features of a Guarantee: The essentials of Contract of Guarantee may thus be summarized as follows (a) Surety's obligation is dependent on principal-debtor's default (b) Time when the Liability of the Surety Arises (c) Liability of Surety when Principal-debtor not Liable Example: A asks B to give a loan of Rs. 1,000 to C promising that if C does not return the amount, he (A) will pay the amount. In the above example A is the surety, B is the creditor and C is the principal-debtor. Whether comfort letters are Guarantees A surety is discharged from his liability when there is variation in the terms of the contract without his (surety's) consent. Essential Features of Guarantee: Concurrence of three contracts Primary liability is that of the principal debtor In case the debtor is a minor , the suretys liability becomes primary All the essentials of a valid contract It may be in writing or oral There need not be full disclosure of facts to the surety before he gives the guarantee

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Types of Guarantee: 1. Specific Guarantee: When a guarantee extends to a single transaction or debt it is known as a specific or simple guarantee 2. Continuing Guarantee: When a guarantee extends to a series of transactions, it is called continuing guarantee.

8.7 Contract of Bailment

As per Indian contract Act Bailment means 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 conditions of the persons delivering them The person who delivers the goods is called Bailor and the person to whom goods are delivered is Bailee.

Essentials of Bailment: There must be a contract. Contract must be to deliver some movable goods. There must be delivery of goods from one person to another. Goods must be delivered for some specific purpose. Goods delivered must be returned when the purpose is fulfilled. Examples bailment may be for deposit, for use, for pledge,for carriage,for repair etc.

Duties of bailor: To disclose faults in the good bailed (Case Study Below) Case Study- Great Northern Railways v. L.E.P Transport Ltd [1922] 2 KB 742 LEP transport ltd delivers some packets to G.N.R to transport the goods, but the company does not warns Railways that the packet contains explosives and it should be handled with extra care necessary for such articles. Subsequently explosion takes place injuring carriage and some other goods . The court held the company liable for such damages. To bear expenses in case of gratuitous bailment To indemnify the Bailee for his loss due to defective title. To receive back the goods To bear normal risks

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Duties of bailee: To take reasonable care if goods delivered to him ( Case Study- Below). Case Study- RamGopal v Gauri Shankar AIR 1952 Nagpur 8 Ram Gopal bailed his ornaments to Gauri Shankar. Gauri kept the ornaments in a locked safe, and kept the keys of the safe in a cash box in the same room which was locked from outside. The room was on ground floor and was easily accessible to the burglars. Subsequently , the ornaments were stolen from the safe using the keys kept in the cash box. The court held that Gauri Shankar failed to take care which the nature of articles requires, hence he was liable for the loss. Case Study- Sitla Singh v Baij Nath [1936] Oudh, 264 Sitla entrusted some silver to Baij Nath, a goldsmith, for making jewels. The silver was lost in spite of all the care taken by Baij for its safety i.e. By keeping it locked in almirah and employing a watchman for the night. The court held that BaijNath was absolved from the liability of loss. Not to make unauthorised use of bailed goods. To return back the goods to the Bailor To deliver any accretion to the bailed goods. Rights of bailor: Enforcement of rights. Avoidance of contract. Return of goods lent gratuitously. Compensation from a wrong doer.

Rights of bailee : Delivery of goods to one of several joint bailor of goods. Delivery of goods to bailor without title. Right to apply to court to stop delivery. Right to action against trespassers. Bailee s lien.

Termination of Bailment: Expiry of the specified period: if bailment is made for the specified period, it automatically terminates on the expiry of such period. Achievement of the object: If bailment is made for the specified purpose, it terminates as soon as the purpose is achieved.
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Inconsistent use of goods: if the Bailee does some act with respect of the bailed goods which is inconsistent with the terms if the bailment, the contract of bailment becomes voidable at the option of the Bailor (section 153) Death of the Bailor or Bailee: A gratuitous bailment is terminated by death of Bailor or Bailee. (Section 162). Termination by Bailor: A gratuitous bailment is terminated by the Bailor at any time even if the purpose or period of bailment is not over. However, if due to this termination, loss caused to Bailee exceeds the benefit obtained from such bailment, he is entitled to be indemnified from Bailor for such excess loss (Section 159)

8.8 Contract of Agent

Agency is a contract where one person called agent, is permitted to do any act for his principal or to represent his master in dealings with the third persons. The person for whom such act is done, or who is so represented is called the principal. Two principles govern the law of agency are: Whatever a person can do personally, he is authorized to do it through agency. He who does his act through other is considered as he has does it himself.

Discharge of Contract

Discharge of contract means termination of the contractual relationship between the parties. When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged. A contract may be discharged either by the acts of the parties or the operation of law. Act of parties may take different forms like performance, agreement, breach, etc. while operation of law includes death, insolvency, etc. A contract may be discharged in any of the following ways: Discharge by Performance Discharge by Agreement Or Consent Discharge by Impossibility Of Performance Discharge by Lapse Of Time Discharge by Operation Of Law Discharge by Breach Of Contract

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9.1 Discharge by Performance

Performance means the doing of that which is required by a contract. Discharge by performance takes place when the parties to the contract fulfill their obligation arising under the contract within the time and in the manner prescribed. In such a case, the parties are discharged and the contract comes to an end. But if only one party performs the promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach. Performance of a contract is the most usual mode of its discharge. It may be by 1. Actual Performance: When both the parties perform their promises, the contract is discharged. Actual performance must be complete, precise and according to the terms of the agreement. Most of the contracts are performed in this manner. Attempted Performance: When the promisor offers to perform his obligation, but promisee refuses to accept the performance.

2.

9.2 Discharge by Agreement of Consent

As it is the agreement of the parties which binds them, so by their furhter agreement or consent the contract may be terminated. The parties may get discharged from their obligation of performance of contract by mutual consent or agreement. Types of Discharge by Agreement of Consent NOVATION: New contract substituted for old contract with the same or different parties RESCISSION: When some or all terms of a contract are cancelled ALTERATION: When one or more terms of a contract is/are altered by the mutual consent of the parties to the contract REMISSION :Acceptance of a lesser fulfilment of the promise made. WAIVER :Mutual abandonment of the right by the parties to contract MERGER :When an inferior right accruing to a party to contract merges into a superior right accruing to the same party

9.3 Discharge by Impossibility of Performance

Impossibility discharges the parties to a contract. Even if the act becomes impossible after formation of contract, the contract is rendered void. Impossibility falls in the following two categories: 1. Initial Impossibility: Initial impossibility means impossibility at the time of formation of the contract. An agreement to do an impossible act in itself is void.

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2.

Subsequent Impossibility: Sometimes a contract is capable of being performed when entered into, but some subsequent event renders the performance impossible. In such a case also, the contract become void. The subsequent impossibility may arise (i) by some event beyond the control of the parties, or (ii) by some act of the promisor or promisee.

9.4 Discharge by Lapse of Time

The limitation act provides that a contract should be performed within a specified period i.e. period of limitation. If the contract is not performed, and if no legal action is taken by the promise within the period of limitation, he is deprived of his remedy at law. In other words, the contract in such a case is terminated. For example, for the price of goods sold and delivered, where no fixed period of credit is agreed upon, the payment should be made or a suit instituted to recover it within 3 years from the date of delivery of the goods. If the payment is not made and the creditor does not file a suit against the buyer for the recovery of the price within the period of 3 years, the debt becomes time-barred and irrecoverable.

9.5 Discharge by Operation of Law

A contract may be discharged independently of the wishes of the parties i.e.; by operation of law. This includes: Death Merger Insolvency Unauthorized Alteration Of The Terms Of A Written Agreement Rights & Liabilities Vesting In The Same Person Loss of evidence.

9.6 Discharge by Breach of Contract

Breach of contract means refusal of performance by a party. Where a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the other party or aggrieved party may put an end to the contract unless he has waived his right expressly or impliedly. For instance, X, a singer enters into a contract with Y to sing at his theatre every night during next month. Y agrees to pay him Rs. 250 for each night. On the 10th night, X willfully absents herself from the theatre. Y can put at an end to the contract. Breach of contract may be of two kinds : 1. Actual Breach: It occurs when a party fails to perform his obligation upon the date fixed for performance by the contract, as for example, where on the appointed day, the seller does not deliver the goods or the buyer refuses to accept the delivery. It is to
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be noted that actual breach of contract due to non-performance can only arise when the time for performance has arrived. Actual breach entitled the party not in default to elect to treat the contract as discharged and to sue the party at fault for damages for breach of contract. 2. Anticipatory breach: it takes place before the date of actual performance. The promisor may either inform the promisee that he will not perform the contract or may do an act which is inconsistent with the contract or renders the performance impossible.

10

Remedies for Breach of Contract

When two people agree to do certain things in pursuance of a contract, they are expected to carry out these things. Common sense dictates that if a person is not held accountable for his actions, he will not be able to have any sort of commercial transactions, which would have any degree of credibility. The law accepts and recognizes this necessity and, the Contract Act, specifically, provides that, if one of the parties breaks a contract, the party aggrieved by such a break, is entitled to receive from the other party, compensation for any loss or damage caused to him because of such action. Obviously, the amount of compensation which can be obtained would depend upon the facts and circumstances of each case and, the amount of damage suffered. When a contract is broken, the injured party has the following remedies 1. Rescission of the contract 2. Damages for the loss sustained or suffered 3. A decree for specific performance 4. An injunction

10.1 Rescission of Contract

When a breach of contract is committed by one party, the other party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from all his obligations under the contract. Eg: A promises B to supply 100 bags of rice on a certain date and B promises to pay the price on receipt of the goods. A does not deliver the goods on the appointed day, B need not pay the price.

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10.2 Damages
Damages are a monetary compensation allowed to the injured party by the court for the loss or injury suffered by him by the breach of a contract. The damages can be classified as below:

10.2.1

Ordinary Damages:

Ordinary damages are those which naturally arose in the usual course of things from such breach. The measure of ordinary damages is the difference between the contract price and the market price at the date of the breach. If the seller retains the goods after the breach, he cannot recover from the buyer any further loss if the market falls, nor be liable to have the damages reduced if the market rises. Eg: (1) A contracts to deliver 100 bags of rice at Rs. 100 a bag on a future date. On the due date he refuses to deliver. The price on that day is Rs. 110 per bag. The measure of damages is the difference between the market price on the date of the breach and the contract price, viz., Rs. 1,000.

10.2.2

Special Damages

Special damages are claimed in case of loss of profit, etc. When there are certain special or extraordinary circumstances present and their existence is communicated to the promisor, the non-performance of the promise entitles the promise to not only claim the ordinary damages but also damages that may result there from. Eg: (1) A, a builder, contracts to erect and finish a house by the 1 st of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January, it falls down and has to be rebuilt by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost, and for the compensation made to C. Case Law: Madras Rail Company vs Govind Ram Govind ram, a tailor delivered sewing machine and some cloth to a Rail company to be sent to a place, where he expected to earn profits in view of a forthcoming festival. The railway company was unaware of this fact and the goods reached the destination after the festival. The tailor could not claim damages for loss of profit.

10.2.3

Vindictive Damages

Vindictive damages are awarded with a view to punish the defendant, and not solely with the idea of awarding compensation to the plaintiff. These have been awarded (a) for a breach of
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promise to marry; (b) for wrongful dishonour of a cheque by a banker possessing adequate funds of the customer. The measure of damages in case of : (a) Independent upon the severity of the shock to the sentiments of the promisee. (b) the rule is smaller the amount of the cheque dishonoured, larger will be the amount of damages awarded.

10.2.4

Nominal Damages

Nominal damages are awarded in cases of breach of contract where there is only a technical violation of the legal right, but no substantial loss is caused thereby. The damages granted in such cases are called nominal because they are very small. Duty to mitigate damages suffered. It is the duty of the injured party to minimise damages. He cannot claim to be compensated by the party in default for loss which is really not due to the breach but due to his own neglect to minimise loss after the breach. Examples (1) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A such compensation, not exceeding Rs. 1,000, as the Court considers reasonable.

10.3 Specific Performance

Where damages are not an adequate remedy, the Court may direct the party in breach to carry out his promise according to the terms of the contract. This is called specific performance of the contract. Some of the instances where Court may direct specific performance are : a contract for the sale of a particular house or some rare article or any other thing for which monetary compensation is not enough because the injured party will not be able to get an exact substitute in the market. Specific performance will not be granted where: (a) Monetary compensation is an adequate relief. (b) The contract is of a personal nature, e.g., a contract to marry. (c) Where it is not possible for the Court to supervise the performance of the contract, e.g., a building contract. (d) The contract is made by a company beyond its objects as laid down in its Memorandum of Association.

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10.4 Injunction
Injunction means an order of the Court, where a party is in breach of a negative term of contract (i.e., where he does something which he promised not to do), the Court may, by issuing an order, prohibit him from doing so. Eg: (1) G agreed to buy the whole of the electric energy required for his housefrom a certain company. He was, therefore, restrained by an injunction from buying electricity from any other person [Metropolitan Electric Supply Company vs Ginder]. Case Law : ESPN Software India Pvt Ltd(ESPIL) VS Cable Operators The Delhi High Court ordered in favour of ESPN Software India Pvt Ltd (ESIPL) in its suit for permanent injunction filed against cable operators across the country against unauthorized broadcast of the ongoing India`s cricket tour to Australia. The High Court restrained all cable operators, hotels and internet websites from unauthorised showing the series in any manner.

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