Вы находитесь на странице: 1из 34

KRISHNA INSTITUTE OF LAW

CONTRACT - I
Paper Code: K-105 Max. Marks: 100

*Meaning of Contract

An agreement enforceable by law is a contract. In other words, an agreement which can be enforced in
a court of law is known as a contract.

Contract = An Agreement + Enforceability of an agreement

Classification of Contracts

1-Creation

A) Express Contract B) Implied Contract


2- Execution

A) Executed Contract C) Party Executed and Partly Executory


B) Executory Contract Contract
3- Enforceability

A) Valid/ Void Contract C) Voidable Contract


B) Void Agreement
*Essential Element of a Valid Contract

1. Proper offer and its Proper Acceptance 6. Lawful object


2. Intention to create legal relationship 7. Agreement not expressly declared void
3. Free consent 8. Certainty of meaning
4. Capacity to contract 9. Possibility of performance
5. Lawful consideration 10. Legal formalities
*Meaning of Offer

An offer is the starting point in the making of an agreement. An offer is also called ‘proposal’.

According to Section 2()a of The Indian Contract Act, 1872, “A person is said to have made the proposal
when he signifies to another his willingness to do or to abstain from doing anything with a view to
obtaining the assent of that offer to such act or abstinence.”

Example:- X says to Y that he wants to sell his car to himself for Rs 1 lakh. There is no Proposal because
there can be no proposal by a person to himself.

*Meaning of Offerer / Offeree (Promisor / Promisee)

[1]
KRISHNA INSTITUTE OF LAW
The person making the proposal is called the offerer or proposer. The person to whom the proposal is
made is called the offeree or propose.

Legal Rules for a Valid Offer

1. Intention to create legal relationship 5. No term the non-compliance of which


2. Certain and unambiguous terms amount to acceptance
3. Proper communication 6. Different from a mere declaration of
4. Communication intention
7. Different from an invitation to offer

*Acceptance
Acceptance means giving consent to the offer. It is an expression by the offeree of his willingness to be
bound by the terms of the offer

Example:- X offers to sell his car to Y for Rs 1lakh. Y agrees to buy the car for Rs 1lakh . Y’s act is an
acceptance of X’s offer.

Legal Rules for a Valid Acceptance

1. Absolute & unqualified


2. Manner in which acceptance is to be given
3. Communication
4. By whom - Acceptance must be communicated by the offeree himself or by a person who has the
authority to accept.
5. To whom – Communicated to the offerer himself.
6. Time limit
7. Before lapse of offer

*CAPACITIES TO CONTRACT (SHORT DETAIL)

Competent to Contract-

Every person is comptent to contract who is 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.

Position of Agreements by a Minor

1. Validity – It is always void 3. Miner can always plead for minority in


2. No Estoppels case of fraudulent representation of
age by minor

[2]
KRISHNA INSTITUTE OF LAW
4. Ratification on attaining the age of 8. Minor as a shareholder or member of a
majority not allowed company
5. Validity of minor’s agreement jointly 9. Minor as an insolvent – can’t be
with a major person insolvent
6. Minor as a partner - can be admitted 10. Contract for the benefit of a minor
only for profit 11. Contract by minor’s guardian
7. Minor as an agent 12. Contract for supply of necessaries –
minor property is liable.

Persons Disqualified by Law

1. Alien enemies 3. Convicts


2. Foreign sovereigns 4. Insolvents

Capacity to contract (Detailed Notes)

According to section 11 every person who


a. Has attained the age of majority,
b. is of sound mind and
c. Is not otherwise disqualified from contracting, is competent to contract.

Contracts with minors

In India, the age of majority is regulated by the Indian majority act (Act IX of
1875). Every person domiciled in India attains majority on the completion
of 18 years of age. The position of a minor as regards his agreement may be
summed up as follows:
1) An agreement with minor is void ob initio: the reason for this rule is that
it is presumed in law that a minor cannot understand the implications of his
acts and therefore cannot be bound by any promise made by him. Example:
A minor executed a mortgage for Rs. 20,000 and received Rs. 10,500 from
the mortgagee as advance. Then he sued for setting aside the mortgage.
The mortgage claimed refund of Rs. 10,500 which he had paid. Held, an

[3]
KRISHNA INSTITUTE OF LAW
agreement by the minor was void, and the mortgage could not recover the
amount of Rs. 10,500. (Mohiri bibi Vs. Dharmodas Ghost)
2) Estoppel does not apply against a minor: If a minor misrepresents his
age and induces another to enter into a contract with him, estoppels will
not apply against him. These can be estoppels against a statute, and the
statute that a minor cannot enter into a contract.
3) Minor not liable in contract or tort arising out of a contract: A minor is
not liable in a contract because he is incapable of giving a valid consent. But
a minor can be made liable if a tort is committed by him. Where a tort
arises because of a contract, a minor cannot be made liable even in tort
because that would be an indirect way of enforcing a contract. Example: a
minor obtained a loan by falsely representing his age. The lender filled a
case of tort of deceit end claimed damages. Held, that loan could not be
recovered as it would be indirectly enforcing a contractual obligation.
4) Doctrine of restitution: if a minor obtains rokerty and goods
misrepresenting his age, he can compelled to restore, but only if it
isiraceableintis_msession. This itail equitable doctrine of restitution.
5) No ratification on attaining majority: A minor cannot ratify an
agreement on attaining majority which he had entered into during
minority. Ratification relates back to the date of the act and therefore a
contract which was void ab initio cannot be validated by subsequent
ratification.
Example: K, an infant, speculated and lost heavily on the stock exchange.
He became liable to the share brokers for E 547. On his attaining the age of
majority, he gave two bills for f 50 each In satisfaction of the original debt.
Held, K could not be liable on the bills.
6) Minor cannot become a partner: A minor cannot enter into partnership
agreement. But a minor may be admitted to the benefits of a partnership
with the consent of all the partners. He can become a full fledged partner
on attaining majority [section 30, Indian Partnership Act, 1972).

[4]
KRISHNA INSTITUTE OF LAW
7) Minor cannot be adjudged insolvent: A minor cannot be adjudged
insolvent as he is incapable of contracting a debt.
8) Beneficial contracts: where a minor has already given the full
consideration to be supplied by him and there is nothing that remains to be
done by him under the contract, a minor can enforce the contract.
9) Minor liable for necessaries: a minor Is liable for necessaries supplied to
him or any one whom he is legally bound to support, to the extent of his
estate (sec. 68). The term 'necessaries' is not defined in the Indian Contract
Act, 1892. The English sale of goods Act, 1893 defines necessaries as
follows: "Goods suitable to the condition in life of such infant or other
person, and to his actual requirement at the time of sale and delivery."

Persons of unsound mind


In India law one of the essential conditions of competence of parties to a contract
is that the parties should be of sound mind. Sec. 12 lays down a test of soundness
of mind. It reads as follows:

"A person is said to of sound mind for the purpose of making a contract, if at the
time when he makes it, he is capable of understanding it, and of forming a
rational judgment as to its effect upon his Interests.

A person who is usually of unsound mind, but occasionally of sound mind, may
makes a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may
not make a contract when he is of unsound mind."

Examples:

a. A patient in a lunatic asylum who is at intervals of sound mind, may make a


contract during these intervals.

[5]
KRISHNA INSTITUTE OF LAW
b. A sane Man, who is down with high fever or who is so drunk that he cannot
understand the terms of a contract or form a rational judgment as to its effect on
his interest, cannot contract whilst such high fever or drunkenness lasts.

The following persons have been held to be persons of unsound mind:

a) Lunatics: A lunatic is a person who is mentally deranged due to some mental


strain or other personal experience. He suffers from intermittent intervals of
sanity and insanity. He can enter into a contract only during the period when he is
of sound mind.

b) Idiots: An idiot is a person who has completely lost his mentally powers. He
does not exhibit understanding of even minor objects. An agreement with an Idiot
is void.

c) Drunken or intoxicated persons: a drunken person suffers from temporary


incapacity to contract, i.e., at the time when he drunk, so that he is Incapable of
forming a rational judgment. Drunkenness may be a ground for avoidance of
contract. It must be so excessive so as to create impotence of mind. The position
of a drunken person Is similar to that of a lunatic.

Note: A contract by drunken person may be ratified by him when he Is sober.

Agreements entered into by the above persons are void. But according to sec. 68,
these persons are liable for necessary supplied to them or to persons whom they
are legally bound to support. But even in such a case, no personal liability
attaches to them. It is only their estate which is liable.

Status
a) Mien enemies: An alien is a person who is a citizen of a foreign country. An
alien may be

i. An alien friend; or

ii. An alien enemy.

[6]
KRISHNA INSTITUTE OF LAW
Contract with an alien friend (an alien who state is at peace with the Republic of
India), subject to certain restrictions, are valid.

Contracts with alien enemies (an alien who states is at war with the republic of
India) may be studied under two heads:

i. Contract made before the war: These contracts may either be suspended or
dissolved.

Contracts will be dissolved if they are against the public policy or if their
performance would help the enemy.

ii. Contracts made during the war: During the continuance of the war, an alien
enemy can neither contract with an Indian citizen nor can he sue in an Indian
Court. He can sue in an Indian Court only after receiving a license from the Central
Government.

b) Foreign sovereigns: Foreign sovereigns and accredited representatives of a


foreign States cannot be sued unless they on their own, submit to the jurisdiction
of our law courts. They can enter into contracts and enforce those contracts in
our Courts. A prior sanction of the central government must be obtained in order
to sue a Ruling Prince or Chief, or any Envoy or Ambassador of a foreign State in
our law Courts.

c) Corporations: A corporation is an artificial person created by law. It does not


have any physical existence. It can sue and be sued but only through an agent. Its
powers to act are limited 9.y_the. Memorandum of Association and the statute. If
it exceeds such powers, the contract shall be-ultra virus..

d) Insolvent: When a debtor is adjudged insolvent, whole of his property vests in


the official Receiver or Official Assignee. As such, the insolvent Is deprived of all
power to deal in that property. He also suffers from certain disqualifications
which are removed when the court passes an order of discharge.

[7]
KRISHNA INSTITUTE OF LAW
e) Convicts: A convict is incapable of entering into a contract when undergoing
imprisonment. He can, however, enter into, or sue on, a contract if he is lawfully
at large under a license called eticket of leavei. This incapacity to contract, or to
sue on a contract, comes to an end when he completes the sentence or when he
is pardoned. The convict, however, does not suffer from the rigours of the law of
limitation. Limitation is held in abeyance during the period of his sentence.

*CONSIDERATION (DETAILED NOTES)


Meaning of consideration- "when, at the desire of the promisor, the promise
or any other person

• Ha done or abstained from doing, (past consideration) or

• Does or abstains from doing (present consideration) or

• Promises to do or to abstain from doing something, (future consideration) Such


act or abstinence or promise is called consideration".

Legal requirement regarding consideration


1. Consideration must move of the desire of promisor: To make a contract
binding and enforceable the consideration must be supplied at the desire of the
promisor. If it is done at the desire of the third party or without the desire of the
promisor, it will not be good consideration. On the other hand, an act done on the
promisors desire give a good consideration even though it may of no personal
significance or benefit to him.

2. Consideration may move from promisee or any other person: As long as there
is a consideration for a promise, it is immaterial who has furnished it. It may move
from the promise or any other person. Any other person" is technically referred
to as "stranger to consideration". A person stranger to consideration can sue but
stranger to contract cannot sue.

[8]
KRISHNA INSTITUTE OF LAW
3. Consideration may be nest. Present or future: The definition of consideration
clearly state that the consideration may be past, present or future.

a. Past consideration: consideration is said to be past consideration when


something is provided to or done for the promisor before he gives the promise.

b. Present/Executed consideration: when the consideration is given


simultaneously with the promise, i.e., at the time of making the promise, it is said
to present or executed consideration. Example, cash sales.

c. Future/ Executory consideration: when the consideration from one party to


another is to move at some future dates after making the promise, it is called
future or executory consideration

4. Consideration need not to be adequate: the law simply provides that a


contract should be supported by a consideration. However, it is not concern
about the adequacy of the consideration, provided it is of some value. Inadequacy
of consideration does not invalidate contract provided the consent of the party
getting lesser consideration is free.

5. Consideration must be real and not illusory: consideration, although need not
be adequate, must be real, competent and of some value in the eyes of law. It
must not be impossible or illusory. The following are not real consideration:

a. Physical impossibility

b. Legal impossibility

c. Uncertain consideration

d. Illusory consideration

6. Consideration must be legal: The consideration should not be illegal, immoral


or opposed to public policy. Every agreement whose consideration is unlawful is
void.

[9]
KRISHNA INSTITUTE OF LAW
7. Consideration must not be something which the promisor is already bound to
do: If a person is already bound to do something under law or as an official duty
or under some contract and he promises to do the very same thing to form an
agreement then this promise would not form any consideration for other person's
promise.

Suit by third party on an agreement or Privity of Contract


Though the Indian Contract Act the consideration for an agreement may proceed
from a third party, the third party cannot sue on agreement. Only a person who is
party to a contract can sue on it.

The aforesaid rule is, however, subject to the following exceptions:

1) In the case of trust, beneficiary can enforce his right under the trust, through
he was not a party to the contract between the settler and the trustee.

2) In the case of a family settlement, if the terms of the settlement are reduced
into writing, the members of family who originally had not been parties to the
settlement may enforce the agreement.

3) In the case of certain marriage contract, a female member Can enforce a


provision for marriage expenses, made on the partition of the Hindu undivided
family. Example, A provision is made for the marriage expenses of the female
member of a Hindu family on partition of the joint family properly between the
male members. The female member is entitled to sue the parties to the partition
deed to enforce the provisions in her favour.

4) In case of assignment of a contract, when the benefit under a contract has


been assigned, the assignee can enforce the contract.

5) In the case of an estoppels by acknowledgement of liability or part


performance thereof, that is when, one admits the liability. For example, if L gives
to M Rs. 2000 to be given to N, and M informs N that he is holding the money for

[10]
KRISHNA INSTITUTE OF LAW
him, but after =wards M refuses to pay the money N will be entitled to recover
the same from the farmer.

6) In case of covenant running with the land, the person who purchase land with
notice that the owner of land is bound by certain duties affecting land, the
covenant affecting the land may be enforced by the successor of the seller.

Validity of an agreement without consideration


The general rule, as laid down in sec.25, is that an agreement made without
consideration in void. Sec. 25, however, gives three exceptions to the general
rule. In such cases, the agreements are contracts even though made without
consideration. These cases are:

1) Natural love and affection [Sec. 25 (I)]


Where an agreement is expressed in writing and registered under the law
for the time being in force for the registration of the documents and is
made on account of natural love and affection between the parties
standing in a near relation to each other, it is enforceable even if there is no
consideration. There are four essential requirements of such an agreement:
a. That it Is in writing;
b. That it is registered;
c. That it is made on account of natural love and affection; and
d. That the parties stand in a near relation to each other.

The term 'near relative is not defined in the Act, but when parties are related by
blood or marriage, they are definitely covered. 'Natural love and affection' implies
a degree of instinctive love and affection between parties in near relatives.

Examples

(a) A, for natural love and affection, promises to give his son, N,Rs 1,00,000. A
puts his promise to N in writing and registers it. This is a contract.

2) Compensation for past voluntary service [Sec. 25 (2)]

[11]
KRISHNA INSTITUTE OF LAW
Where there is an agreement to compensate wholly or in part, a person who has
already voluntarily done something for promisor, or something which the
promisor was legally compellable to do, the agreement is valid even though
without consideration. In simple words, a promise to pay for a past for a past
voluntary service is binding.

Example

(a) A finds B's purse and gives it to him. B promises to give A Rs. 500. This is
a contract.
(b) A support B's infant son. B promises to pay A's expenses in so doing.
This is a contract.

3) Promise to pay a time•barred debt [sec. 25 (3)]

A promise by a debtor to pay a time barred debt is enforceable provided it is

a. Made in writing; and

b. Signed by the debtor or by his agent.

Note: 1. The promise may be to pay the whole or any part of the debt.
2. A debt is barred by limitation if it remains unpaid or unclaimed for a
period of three years.
Example: A owes 8 Rs. 1,000, but the debt is barred by the limitation act. A
signs a written promise to pay B Rs. 700 on account of the debt. This is a
contract.
4) Agency: According to Section 185 of the Indian Contract Act, no
consideration is necessary to create an agency.
5) Completed gift: In case of completed gifts, the rule no consideration no
contract does not apply. Explanation (1) to section 25 states "nothing in this
section shall affect the validity as between the donor and done, of any gift
actually made." Thus, gift do not require any consideration.

[12]
KRISHNA INSTITUTE OF LAW
CONSIDERATION (SHORT NOTES)
Essential Elements of Valid Consideration

1. It must be move at the desire of the 5. It must be real and not illusory
promisor 6. It must be something other than the
2. It can move from any person promisor’s existing obligation
3. Past/ Present/ Future 7. It must be Lawful
4. It must be some value
Stranger to a Contract or Privity of Contract

Though a stranger to consideration can sue because the consideration can be furnished or supplied by
any person whether he is the promisee or not, but a stranger to a contract cannot sue because of the
absence of privity of contract(i.e. relationship subsisting between the parties to a contract).

Example:- X owes Y Rs 1lakh and sells his property to Z. Zpromises to pay off X’s debt to Y. Z fails to pay.
Y can’t sue Z because he is a stranger to a contract.

Exception: Stranger to a contract can sue.

a) In case of Trusts - Beneficiary can sue c) Acknowledgement


b) In case of Family Settlement member of d) Assignment of a Contract
family sue can
Contracts without Consideration

Consideration is one of the essential elements of a contractso contract without consideration is void

Exception=Contract are valid even without consideration

a) Agreements Made on Account of Natural c) Promise to Pay Time Barred Debt


Love and Affection d) Completed Gifts
b) Promise Compensate e) Agency

FREE CONSENT (SHORT NOTES)

Meaning:
Two or more persons are said to consent when they agree upon the same thing in the same
sense. When there is no consent at all, the agreement is void ad-initio.

*Coercion
Meaning :

[13]
KRISHNA INSTITUTE OF LAW
Coercion means compelling a person to enter into a contract under a pressure or a threat,
According to Section 15, a contract is said to be caused by coercion when it is obtained by-
A) committing any act which is forbidden by the Indian Penal Code; or
B) threatening to commit any act which is forbidden by the Indian Penal Code;
C) unlawful detaining of any property; or
D) threatening to detain any property.

UNDUE INFLUENCE
The term ‘undue influence’ means dominating the will of the other person to obtain an unfair
advantage over the other. According to Section 16(1), a contract is said to be induced by undue
influence-
a) where the relations subsisting between the parties are such that one of them is in a
position to dominate the will of the other, and
b) the dominant party uses that position to obtain an unfair advantage over the other

FRAUD
The term ‘fraud’ means a false representation of fact made willfully with a view to deceive the
other party.
Essential Elements of Fraud
a) By a party to a contract d) Actually deceived
b) False representation e) Suffered loss
c) Representation as to fact

MISREPRESENTATION
The term ‘Misrepresentation’ means a false representation of fact made innocently or non-
disclosure of a material fact without any intention to deceive the other party.

Essential Elements of Misrepresentation


a) By a party to a contract d) Object
b) False representation e) Actually acted
c) Representation as to fact

MISTAKE
1. Mistake of Law
a) Of Indian Law
b) Of Foreign Law
2. Mistake of Fact

[14]
KRISHNA INSTITUTE OF LAW
a) Bilateral
i) As to subject matter
ii) As to possibility of performance
b) Unilateral
i) Identity of person
ii) Nature of contract

Mistake of Fact – bilateral/ unilateral


The term ‘bilateral mistake’ means where both the parties to the agreement are under a mistake.
Example-
X buys’ a painting believing it to be worth Rs 50,000 while in fact it is worth only Rs 5,000. The contract
is not void as only X is making mistake.

Mistake as to the Subject Matter:


i) Mistake as to the existence of subject matter
ii) Mistake as to the quantity of subject matter
iii) Mistake as to the quality of subject matter
iv) Mistake as to the price of subject matter
v) Mistake as to the identity of subject matter
vi) Mistake as to the title of subject matter

FREE CONSENT (DETAILED NOTES)

Free Consent
1. What is Consent? — "Two or more person are said to consent when they agree
upon the same thing in the same sense",

2. To constitute consent both the parties have the same thing in mind and the
same thing is understood in the same sense by them.

3. The validity of an agreement depends not only upon the consent but upon its
freeness also.

4. What is free consent? — "Consent is said to be free when It is not caused by"

• Coercion, as defined In section 15, or

• Undue Influence, as defined in section 16, or

[15]
KRISHNA INSTITUTE OF LAW
• Fraud, as defined in section 17, or

• Misrepresentation, as defined in section 18, or

• Mistake, subject to the provisions of sections 20, 21 and 22.

5. Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation, or mistake.

6. When there Is no consent, Salmond describe it as "error in Consensus" and


when there Is no free consent he describes it “error in Cause”.

7. To constitute a valid contract there must be identify of mind i.e. two or more
persons should agree upon the same thing in the same manner.

8. Coercion — "Coercion is

• The committing, or

• Threatening to commit, any act forbidden by the Indian Penal Code (45 of
1860)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 onto an agreement".

9. Element of coercion.

• "Coercion" is the committing, or threatening to commit, any act forbidden by


the Indian penal Code.

• (45 of 1860) with the intention of causing any person to agreement.

• 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 an agreement.

[16]
KRISHNA INSTITUTE OF LAW
• The act or threat may be directed either against a party to the contract or any
other person.

• The act or threat must be done or given with the intention of causing the other
person to enter into a contract. If there is no intention to induce the other party
to enter into a contract, there is no coercion.

• Applicability of Indian Penal Code is immaterial.

10. Consequences to coercion

• Contract become voidable

• If the aggrieved party opts to rescind the voidable contract it must restore the
benefits received by it if ant to the person from whom it was received.

11. Undue influence — A contract is said to be Induced by "under 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 that position to
obtain an unfair advantage over the other.

12. A person is deemed to be in a position to dominate the will of another-

• Where he hold the 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.

Burden of proof and presumption of under Influence.

13. The aggrieved party must prove that the order party was in a position to
dominate his will and he actually used his influence to obtain unfair advantage.

14. When the presumption of influence is raised?- the presumption of under


influence is raised in the following cases:

• Father and son


[17]
KRISHNA INSTITUTE OF LAW
• Guardian and ward

• Trustee and beneficiary

• Religious guru and disciple

• Unconscionable bargaining or transactions.

15. What is Unconscionable transactions?- Unconscionable transactions mean a


transaction which is so much to the advantage of one party; and disadvantage to
another party that it shocks it conscience.

16. An unconscionable bargain is such an agreement as no sane person not under


delusion would make and no honest person would take advantage of. This type of
transaction would take place most in money lending transactions where money
lenders charge high rate of interest from the borrowers.

17. Contract with a pardanashin women:- pardanashin women means a women


who, according to the costumes of her community, lives in complete seclusion
from social interaction with the people outside her family. There always a
presumption of undue influence in the case of contract with pardanashin women.
The burden of proof lies on the other party to show that there was no undue
influence which can be established by proving that

• The terms of contracts were fully explained to her

• She understood the implication of the terms of the contract

• She freely consented

• She was in receipt of competent and independent advice in this regard

(i) circumstances where is no presumption of undue influence

• Landlord and tenant

• Debtor and creditor

[18]
KRISHNA INSTITUTE OF LAW
• Husband and wife

18. Effect of undue influence: The agreement is voidable at the option of other
party whose consent was obtained under undue influence.

19. What Is fraud? — "Fraud" means and includes any of the following acts
committed by a party to contract, or with his connivance, or by his agents, with
intent to deceive another party thereto his agent, or to induce him to enter into
the contract: • The suggestion as a fact, of that which is not true, by one who
does not believe it to be true:

• The active concealment of a fact by one having knowledge or belief of the fact:

i. A promise made without any intention of performing it;


ii. Any other act fitted to deceive;
iii. Any such act or omission as the law specially declares to be fraudulent.

20. When silence tantamount to fraud — In the following circumstances silence


will amount to fraud:

• Silence is fraud if the circumstances of the case cast a duty upon the person
keeping silence to speak.

• Silence is fraud where silence in itself is equivalent to speech (Explanation to


section 17).

• Half truth. If the party keeping silence, volunteers to disclose a state of fact
partly as a result of which the undisclosed part renders the disclosed part false,
then there is duty cast upon him to disclose the full facts.

• Change of circumstances — there may be a situation when a representation was


true at the time of making, but later on become false due tot changed
circumstances. In such a case, a duty is cast upon the person who made the
representation to disclose the change in circumstances to the other party.

[19]
KRISHNA INSTITUTE OF LAW
• If a seller fails to inform the buyer as to latent defect in the goods, his silence
amounts to fraud?

• If a trustee does not make full discloser of facts to the beneficiary while entering
into a contract with him as to the property of which he is a trustee his silence as
to any material facts to fraud. Fraud is an intentional. Misrepresentation of
material faces induces other to enter into a contract.

21. Effect of fraud:

• The aggrieved party can rescind the contract if fraud is caused his consent.

• Alternatively the aggrieved party may insist that the contract shall be performed
and that he shall be put in the same position in which he would have been if the
representation made had been true.

• The aggrieved party can sue for damages if he suffers some loss.

22. Misrepresentation: "Misrepresentation" means and includes-

• The positive assertion, in a manner not warranted by the information of the


person making it, of that which is not true, though he believes it to be true;

• Any breach of duty which, without an intent to deceive, gains an advantage to


the person committing it, or anyone claiming under him; by misleading another to
his prejudice, or to the prejudice of anyone claiming under him;

• Causing, however innocently, a party to an agreement, to make a mistake as to


the substance of the things which is subject of the agreement.

23. Essential of element of misrepresentation- The following are the essential


elements of misrepresentation:

• The misrepresentation must be of facts.

• It must be made before entering into a contract.

[20]
KRISHNA INSTITUTE OF LAW
• The representation must be innocently made without the intention to deceive
the other party.

• The misrepresentation must have caused the other party to enter into a
contract.

24. Effect of misrepresentation:

• When consent to an agreement is caused by misrepresentation, the contract is


voidable at the option of other party whose consent was caused by
misrepresentation.

• The aggrieved party can rescind the contract or alternatively insist that the
contract shall be performed and that he shall be put in the position in which he
would have been if the representation made had been true.

• If the party whose consent was caused by misrepresentation had the means to
discovering the truth with ordinary diligence, then the contract is not voidable.

• Contract not necessarily voidable- exceptions:

a) Where consent is caused by misrepresentation and the aggrieved party had


means to discover the truth with ordinary diligence, the contract cannot be
avoided.

b) Where a party enters into the contract in ignorance of fraud or


misrepresentation.

c) Where before the contract is avoided, the interest of third party intervenes.

d) Where the party whose consent was caused by fraud or misrepresentation


cannot be put in the condition had there been no fraud or misrepresentation.

25. Mistake- An erroneous belief concerning something. Mistake may be of law or


of facts.

• Mistake of law:-

[21]
KRISHNA INSTITUTE OF LAW
a) Mistake of law in force in India- "A contract Is not voidable because it was
caused by a mistake as to any law in force in India; but mistake as to a law not in
force in India has the same effect as a mistake of fact".

b) Mistake of foreign law- mistake of foreign law makes the contract voidable if
there is a bilateral mistake.

• Mistake of facts-

a) Bilateral mistake of facts- bilateral mistake is mistake of both the parties


which may be a common mistake or a mutual mistake. Mistake is common
where both the parties make the same mistake.

• Instances of bilateral mistakes- the following are the instances of bilateral


mistakes:

 Existence of the subject matter – A contract entered into on the


assumptions that the subject matter of contract exist at the time of
contract, becomes void, if known to the parties, the subject matter has
ceased to exist or has never been in existence at the time of contract.
 Identity of subject matter- where one party intends to contract with regard
to one thing while the other intends another things there is no agreement
and hence no contract.
 Quality and substance of the subject matter – if there is mistake of both the
parties and it is as to the existence of some quality which makes the things
without the quality essential different from the things as to it was believed
to be, the agreement is void. However, it may be noted that mistake as to
the quality of the subject matter will not render the agreement void in all
cases owing to the application of the rule of caveat emptor.
 Quantity of subject matter: mistake as to quantity of subject matter arises
when the quantity of subject matter is substantially different from the
subject matter contracted to be sold and brought is substantially differ
from the quantity intended to sold and brought.

[22]
KRISHNA INSTITUTE OF LAW
a) Title of subject matter: If one person agrees to buy a property from another
and neither of them knows that is already belongs to the buyer there is
mistake as the person cannot buy his own property.

b) A false and fundament assumption: The fundamental assumption on the


basis of which the contract was made found to be false, the agreement is void.

c) Possibility of performance: where there is bilateral mistake regarding the


possibility of performance of the contract, the agreement in such case is void.

d) Unilateral mistake of facts: contract caused by mistake of one party as to


matter of fact. A contract is not voidable merely because it was caused by one
of the parties to it bring under a mistake as to a matter of fact.

• Exception: In the following cases unilateral mistake make the agreement


void:

a) Mistake as to identity is.

b) Mistake as to the character of the written document.

LEGALITY OF OBJECT

The Indian Contract Act, 1872, the consideration or the object of an agreement is unlawful in the
following cases:
a) If it is Forbidden by Law
b) If it Defeats the Provisions of any Law
c) If it is Fraudulent
d) If the Court Regards it as Immoral or Opposed to Public Policy

Void Agreements If Consideration or Objects Unlawful in Part


According to Section 24, if one of the several considerations or objects of an agreement is unlawful, the
agreement is void.

Agreements Opposed to Public Policy


a) Agreement of Trading with Enemy

[23]
KRISHNA INSTITUTE OF LAW
b) Agreement for Stifling Prosecution
c) Agreement in the Nature of Maintenance and Champerty
d) Agreement for the Sale/ Transfer of Public Offices and Title
e) Agreement in Restraint of Parental Rights
f) Agreements in Restraint of Personal Liberty
g) Agreement Tending to Create Monopoly
h) Agreements Interfering with Course of Justice
i) Marriage Brokerage Contracts
j) Agreement in Restraint of Marriage
k) Agreement in Restraint of Trade
l) Agreement in Restraint of Legal Proceeding

VOID AGREEMENTS AND CONTINGENT CONTRACTS


Meaning of Void Agreements-
A void agreement is an agreement which is not enforceable by law

The following types of agreements have expressly been declares void under various sections of the
Indian Contract Act.
1. Agreements by or with persons incompetent to contract
2. Agreements entered into through a mutual mistake of fact between the parties
3. Agreement, the object or consideration of which is unlawful
4. Agreement, the consideration or object of which is partly unlawful
5. Agreement made without consideration
6. Agreements in restraint of marriage
7. Agreements in restraint of trade
8. Agreements in restraint of legal proceedings
9. Wagering agreement
10. Impossible agreement
11. An agreement to enter into an agreement in the future.

Performance of a Contract

Essential of a Valid Tender


a) Unconditional e) For whole obligation
b) At proper time f) To proper person
c) At proper place g) Of exact amount and in legal tender
d) Reasonable opportunity to promise

Discharge of a Contract (SHORT NOTES)

[24]
KRISHNA INSTITUTE OF LAW
Modes of Discharge of a Contract
1. By Performance
a) Actual Performance b) Tender
2. By Mutual Agreement
a) Novation d) Remission
b) Rescission e) waiver
c) Alteration
3. By Operation of Law
a) Death c) Material Alteration
b) Insolvency d) Same Identity
4. By Impossibility of Performance
a) Initial Impossibility
b) Subsequent Impossibility
*Destruction of Subject Matter *Change of Law
*Death or Personal Incapacity *Cessation of a State of Things
*Declaration of War
5. By Lapse of Time
6. By Breach
a) Actual
i. At the due date of performance
ii. During the performance
b) Anticipatory
i. By express repudiation
ii. By Implied repudiation

Discharge of a Contract (DETAILED NOTES)

Performance of Contract
"Performance of contract" means fulfilling of their respective legal obligations created under
the contract both the promisor and the promise. When a contract is duly performed by both
the parties, the contract comes to a happy ending and nothing more remains. Performance by
all the parties of the respective obligations is the normal and natural mode of discharging or
terminating a contract. The parties to a contract must either perform, or offer to perform,
their respective promises unless such performance is dispended with or excused under the
provision of the Contract Act or of any other law. Promises bind the representatives of the

[25]
KRISHNA INSTITUTE OF LAW
promisor in case of death of such promisor before performance, unless a contrary intention
appears from the contract (Section 37).

Who must Perform?


1. Promisor himself: if It appears from the nature of the contract it was the intention of the
parties that the promise contained in it should be performed by the promisor himself, such
promise must be performed by the promisor. In such cases, death of the promisor puts end to
the contract.

2. Agent where the contract does not involves personal skill of promisor, the promisor or his
representative may employ a competent person to perform it.

3. Legal Representative: the contract which does not involve any personal skill may be
performed by his legal representative after the death of the promisor.

4. Third persons: A contract may be performed by a third person provided the promise accepts
the arrangement. If the promise accepts performance of the promise from a third party, he
cannot afterwards compel the promisor to perform the contract again.

5. Joint promisors: when there are Joint promisors to a contract, the promisee may, if not
contrary provided in the contract, compel any one of them to perform the promise.

Performance of joint promises


When two or more persons have made a joint promise, they are known as joint promisors.
Unless a contrary intention appears from the contract, all joint promisors must jointly fulfill
the promise. If any one of them die, his legal representative must, jointly with the surviving
promisors, fulfill the promise. If all of them die, the legal representatives of all of them must
fulfill the promise jointly. If joint promisor doesn't discharge their obligations as per section 42
then provisions of Section 43 will apply. Section 43 lays down three rules as regards
performance of joint promise:

1. Any one of the joint promisors may be compelled to perform: when there is no express
agreement to the contrary, the promisee may compel any one or more of such Joint promisors
to perform the whole of the promise.

[26]
KRISHNA INSTITUTE OF LAW
2. A joint promisor compelled to perform may claim compensation: When one of the joint
promisors has been compelled to perform the whole of the promise, he may compel every
other joint promisor to contribute equally with himself to the performance of the promise,
unless a contrary intention appears from the contract.

3. Sharing of loss arising from default of joint promisors: If any one of the joint promisor makes
default in such contribution, the remaining joint promisors must bear the loss arising from
such default in equal shares.

Release of joint promisor:


When two or more persons have made a joint promise, a release of one of such joint
promisors by the promisee does not discharge the other joint promisor or joint promisors
neither does it free the joint promisors so released from responsibility to the other joint
promisor or promisors.

Right of joint promisees:


when a person has made a promise to two or more persons jointly, then unless a contrary
intention appears from the contract, the right to claim performance rests with them during
their joint lives, and after the death of any of them with the representatives of such deceased
person jointly with the survivor or survivors, and after the death of the last survivor, with the
representatives of all jointly.

Time and place for performance of the promise:


1. Where no time of performance is specified: If no time is specified in a contract for the
performance of the promise, the promise must be performed within a reasonable time.

Note: Reasonable time is a question of fact.

2. Where time of performance is specified: If a promise is to be performed on a specified date,


the promisor must perform the promise on the day fixed during the usual business hours and
at the place at which the promise ought to be performed.

3. Where no place of performance is fixed: When no place is fixed for the performance of a
promise, it Is the duty of the promisor to ask the promisee to fix a reasonable place for the
performance of the promise and perform it at such place.
[27]
KRISHNA INSTITUTE OF LAW
4. Where performance of application by the promisee: where the promisor has not
undertaken to perform the promise without an application by the promisee, and the promise
is to be performed on a certain day.it is the duty of the promisee to apply for performance at a
proper place and within the usual hours of business.

Distinction between Succession and Assignment:

Succession: When the benefits of a contract are given by succession then both burden and
benefits attaching to the contract are passed to the successor. However, the liability of the
successor will be limited to the extent of the property inherited by him and no further.

Assignment: When the benefits are given by assignment only benefits are passed and not the
burdens. Also burdens of a contract cannot be assigned to anyone.

Effect of a Refusal of Party to Perform Promise:

When a party to a contract has refused to perform or has disabled himself from performing his
promise in entirety, the following two rights accrue to the aggrieved party:

a) Right to terminate the contract;

b) Right to indicate by words or by conduct that he is interested in its continuance.

If he chooses to terminate the then the loss suffered by him will have to be made good by the
promisor. If he choose to continue the he would be entitled to claim damages which accrue on
the date on which the contract is due to be performed.

If contract is rescinded then aggrieved party is to give back all the benefit he may have
received, but is entitled to receive compensation for all damages that he has sustained by the
breach.

Reciprocal promises:

Promises which form the consideration or part of consideration for each other are called
reciprocal promises. Thus, where a contract consists of promise by one party in consideration
of a promise by other party, the promises are called reciprocal promises.

Types of reciprocal promises:

[28]
KRISHNA INSTITUTE OF LAW
1. Mutual and independent: when each party must perform his part of the promise
independently without waiting for the performance or readiness to perform by the other
party, the promises are called mutual and independent.

2. Condition and dependent: when the performance of one depends on the prior performance
of the other party, the promises are called conditional and dependent.

3. Mutual and concurrent: When the parties have to perform their promises simultaneously,
they are said to be mutual and concurrent.

Rules for performance of reciprocal promises:

1. Mutual and concurrent: Where reciprocal promises are to be performed simultaneously, the
promisor need not perform his promise unless the promisee is ready and willing to perform his
promise.

2. Mutual and dependent: Where the performance of promise by one party depends upon the
prior performance of the promise by the other, if the party who is liable to perform first, fails
to perform, then he cannot claim performance form the other party. Also the defaulter
becomes liable to pay compensation to the other party for any loss sustained by the non
performance of the contract.

3. Mutual and independent: In this case, if a party fails to keep his promise, the other party
cannot excuse himself from performance on the ground of non-performance by the defaulting
party. However, the aggrieved party can claim damages from the defaulting party.

4. Order of performance of reciprocal promises: Where the order in which the reciprocal
promises are to be performed is not expressly fixed by the contract, they must be performed
in the order which the nature of the transaction requires.

5. Effect of one party preventing another from performing promise: When the contract
contains reciprocal promises, one party may prevents the other from performing his promise,
then the contract becomes voidable at the option of the party so prevented. Also, he can claim
compensation from the other party for any loss sustained due to non-performance of the
contract.

Reciprocal promises to do certain things that are legal, and also some other things that are
illegal:
[29]
KRISHNA INSTITUTE OF LAW
When persons reciprocally promise, first to do certain things which arc legal and secondly,
under specified circumstances, to do certain other things which are illegal, the first set of
promises is a contract, but the second is a void agreement.

Time as the essence of the contract (section SS):

"Time Is the essence of the contract" means that the time is an essential factor and the
concerned parties must perform their respective promises within the specified time.

1. Time is essence: In a contract, In which time is of the essence of the contract, if there is
a failure on the part of the promisor to perform the obligation within the fixed time, the
contract becomes voidable at the option of the promisee. If, in such case, the promisee
accepts the offer after the fixed time, he cannot claim any compensation for the loss
sustained due to non-performance of the promise at the agreed time. However, where
at the time of accepting the delayed performance he gives notice to the promisor of his
intention to claim compensation, he can do so.
2. Time is not of essence: In a contract, in which time is not of the essence, failure on part
of the promisor to perform his obligation within the fixed time does not make the
contract voidable, but the promise is entitled to compensation for any loss sustained to
him by such failure.

Appropriation of payments:

Where debtor having several debts and he does not pay all debts simultaneously the following
rules shall apply:

1. Application of payment where debt to be discharged is indicated It means that whatever is


paid; is paid according to the intention or manner of the party paying.

2. Application of payment where debt to be discharged is not indicated: If the debtor owing
several debts to the creditor has not intimated, which debt is to be adjusted, at the time of
payment, the creditor is entitled to appropriate it to any legal debt including time barred debt
but not disputed debt.

3. Application of payment where neither party appropriates: Where neither party makes any
appropriation, the payment shall be applied in discharge of the debts in order of time;
whether they are or not barred by the law In force, if the debts are of equal standing, the
payment shall be applied in discharge of each proportionately.
[30]
KRISHNA INSTITUTE OF LAW
Effect of neglect of promisee (section 67): If any promisee neglects or refuses to afford the
promisor facilities for the performance of a promise, the promisor is discharge from the
performance of his promise. The promisor cannot be held liable for the non-performance.

Discharge of contracts:

i. Discharge by performance
ii. Discharge by mutual agreement
iii. Discharge by lapse of time
iv. Discharge by operation of law
v. Discharge by impossibility of performance
vi. Discharge by breach of contract

Discharge by performance:

Discharge by performance takes place when the parties to the contract fulfill their obligations
arising under the contract. In such a case, the parties are discharged and contract comes to an
end. The performance of contract may be:

• Actual performance: Where both the parties perform their promises.

• Attempted performance: Where a party offers to perform his obligation under the contract
but the other party refuses to accept his performance.

Discharge by agreement or consent:

The contractual obligation may be discharged by agreement among the parties to the
contract. The parties to the contract may agree to rescind the contract, alter the contract or
substitute it with a new contract. In such a case, the original contract gets discharged. A
contract may terminate by mutual consent in any one of the following ways:

a) Novation: Novation take place when:


• A new contract is substitute for an existing one between the same parties; or
• A new contract is substitute for an existing one where the contract on the same terms
is entered into between one of the parties and a third party. On novation, the original
contract is discharged and need not be performed. However, the novation should take
place before the expiry of the time for the performance of the original contract.

[31]
KRISHNA INSTITUTE OF LAW
b) Alteration: the parties to a contract may mutually decide to alter certain terms of the
contract. When the parties to a contract, agree to alter the contract, the original contract is
rescinded and need not be perform. For alteration, the benefiting party has to pay some
consideration to the other party.

Difference between Novation and Alteration:

1. In novation, there may be change in the term of the contract or In the partied to the
contract. However, in alteration there is change only in the term of the contract and not in the
parties to the contract.

2. In novation there is a substitution of an existing contract with a new one. But in alteration
there is no such substitution but only a change in some terms and condition of the original
contract.

3) Rescission: Rescission means termination of a contract. Where parties mutually decide to


cancel the terms of the contract, the contract need not be performed. In rescission, the old
contract is cancelled and no new contract comes into existence.

4) Remission: remission is said to be done where a party to the contract agrees to:

 Dispense with (waive the performance); or


 Accept a lesser amount or lesser degree of performance for full discharge of contract; or
 Extends the time of performance.

For remission, no consideration is required to be paid by the benefiting party. Once the party
agrees for remission, it cannot be revoked. However, the remission may be conditional.

5) Waiver: Waiver means abandonment or intentional relinquishment of a right under a


contract. A promise may dispense with the performance of a promise. When a party waives his
right under a contract the other party is released from his obligation. Consideration is not
necessary for wauver.

Discharge by lapse of time:

The right and obligation under a contract can be enforced only within a specified periods
called the ‘periods of limitation’. The limitation act has prescribed the period of limitation for

[32]
KRISHNA INSTITUTE OF LAW
various contracts. After the expiry of the limitation period, the contractual right cannot be
enforced and the contract comes to an end due to lapse of limitation period.

Discharge by operation of law:

A contract may be discharged by operation of law in the following cases:

Death of the promisor: Contracts, the performance of which involves personal skill or ability of
the promisor, comes to an end with the death of the promisor.

Insolvency: When a person is declared insolvent by insolvency Court, he is discharged from all
his liabilities incurred prior to his adjudication.

Merger: When an inferior right accuring to a party in a contract merges into a superior right
accruing to the same party, then the contract conferring inferior right is discharged.

By unauthorized alteration of terms of a written document: where any of the parties to a


contract makes any material alteration to the term of the contract without seeking the
consent of the other party, the contract can be avoided by the other party as his will.

Quasi Contract
Meaning-
Quasi-Contracts arises when one person has done something for another or paid money on his behalf to third
party then the court comes forward on the ground of “equity” saying that the person receiving the benefit
must make compensation to the other otherwise he would become rich on the expenses of the other.” For
Example – A person to whom money has been paid or anything delivered by mistake must repay or return it as
if there was a contract between the parties to that effect. Such obligation, for want of proper name, it
appears, are called Quasi-Contracts under the English Law.

Essential-
Provision regarding Quasi Contract
1. Necessaries supplied to a person incapable of contracting
2. Payment made on behalf of another
3. Responsibility of finder of goods
4. Money paid by mistake or under coercion
[33]
KRISHNA INSTITUTE OF LAW
5. Obligation of person enjoying benefits of non-gratuitous act

Quantum Meruit

The term ‘quantum meruit’ means as much as merited or ‘as much as earned’. In other work, it means payment in
proportion to the amount of work done. Generally, one cannot claim performance from another unless one has
performed his obligation in full but in certain cases, a person who has performed some work under a contract can claim
remuneration for the work which he has already done.

Cases in which the Claim of Quantum Meruit arises


1. In case of void agreement or contract that becomes void
2. In case of non-gratuitous act
3. In case of act preventing the completion of contract
4. In case of divisible contract
5. In case of indivisible contract performed completely but badly

Contingent contract
Meaning –
A “contingent contract” is contract to do or no to do something if some event collateral to such contract does or does
not happen (Section 31).
Illustration
A contracts to pay B Rs.10,000 if B’s house is burnt. This is contingent contract.
Provision regarding-
1. Agreement contingent upon happening of uncertain events.
2. Agreement contingent upon non happening of uncertain events.
3. Agreement contingent upon happening of uncertain events within a fixed period.
4. Agreement contingent upon non happening of uncertain events within a fixed period.
5. Agreement contingent upon happening of impossible events.
6. Agreement contingent upon Act of Person.

[34]