BUSINESS LAWS1 The Indian Contract Act, 1872 Any commercial activity requires understanding among people concerned

This understanding is o!ten reduced into "riting to give e!!ect to the intention o! the parties #uch !ormal versions are $no"n as contracts These contracts de!ine the rights and o%ligations o! various parties to !acilitate easy per!ormance o! the contractual o%ligations The Indian Contract Act, 1872 codi!ies the legal principles that govern such contracts The Act %asically identi!ies the ingredients o! a legally en!orcea%le valid contract in addition to dealing "ith certain special type o! contractual relationships li$e indemnity, guarantee, %ailment, pledge, quasi contracts, contingent contracts etc 1 1 &hat is a Contract' &hile all contracts are agreements, all agreements are not contracts An agreement "hich is legally en!orcea%le alone is a contract Agreements "hich are not legally en!orcea%le are not contracts %ut remain as void agreements "hich are not en!orcea%le at all or as voida%le agreements "hich are en!orcea%le %y only one o! the parties to the agreement The a%ove o%servation "ould raise a question in our minds as to "hat is the e(act meaning o! the "ords agreements and contracts An Agreement is a promise or a commitment or set o! reciprocal promises or commitments An Agreement involves an o!!er or proposal %y one person and acceptance o! such o!!er or proposal %y another person I! the agreement is capa%le o! %eing en!orced %y la" then it is a contract )o" let us ta$e a loo$ at the de!initions as per the Act #ection 2*%+ "hile de!ining a promise provides that ,"hen the person to "hom the proposal is made signi!ies his assent thereto, the proposal is said to %e accepted -roposal "hen accepted %ecomes a promise. #ection 2*e+ o! the Act de!ines an agreements as every promise and every set o! promises !orming consideration !or each other #ection 2*h+ o! the Act de!ines the term contract as ,an agreement en!orcea%le %y la". 1 2 /ssentials o! a 0alid Contract )o" let us discuss the various essential elements o! a valid contract In terms o! #ection 11 o! the Act, ,all agreements are contracts i! they are made %y the !ree consent o! the parties competent to contract, !or a la"!ul consideration and "ith a la"!ul o%2ect and are not e(pressly declared to %e void. Thus in order to create a valid contract, the !ollo"ing elements should %e present3 1 Intention to create legal o%ligation through o!!er and acceptance should %e present 2

4ree consent o! the parties is necessary 5 into contract must %e ensured 6 9 Agreement not e(pressely declared to %e void

Competency or capacity o! parties to enter

7a"!ul consideration 8 la"!ul o%2ect should %e present, and

The a%ove important elements may %e !urther analy:ed as under3 1 ;!!er and Acceptance3 In the !irst place, there must %e an o!!er and the said o!!er must have %een accepted #uch o!!er and acceptance should create legal o%ligations %et"een parties This should result in a moral duty on the person "ho promises or o!!ers to do something #imilarly this should also give a right to the promisee to claim its !ul!illment #uch duties and rights should %e legal and not merely moral Case la"3 In <al!our v <al!our, a hus%and promised to pay maintenance allo"ance every month to his "i!e, so long as they remain separate &hen he !ailed to per!orm this promise, she %rought an action to en!orce it As it is an agreement o! domestic nature, it "as held that it does not contemplate to create any legal o%ligation 2 Consent3 The second element is the consent o! the parties Consent means $no"ledge and approval o! the parties concerned This can also %e understood as identity o! minds in understanding the term vi: consensus ad idem 4urther such a consent must %e !ree Consent "ould %e considered as !ree consent i! it is not vitiated %y coercion, undue in!luence, !raud, misrepresentation or mista$e &herever the consent o! any party is not !ree, the contract is voida%le at the option o! that party Illustration3= A threatened to shoot < i! he *<+ does not lend him > 2111 and < agreed to it ?ere the agreement is entered into under coercion and hence voida%le at the option o! < 5 Capacity o! the parties3 The third element is the capacity o! the parties to ma$e a valid contract Capacity or incapacity o! a person could %e decided only a!ter rec$oning various !actors #ection 11 o! the Indian Contract Act,1872 ela%orates on the issue %y providing that a person "ho= has not attained the age o! ma2ority, is o! unsound mind and is disquali!ied !rom entering into a contract %y any la" to "hich he is su%2ect, should %e considered as not competent to enter into any contract There!ore la" prohi%its *a+ @inors *%+ persons o! unsound mind Ae(cluding the 7ucid intervalsB and *c+ person "ho are other"ise disquali!ied li$e an alien enemy, insolvents, convicts etc !rom entering into any contract 6 Consideration3 The !ourth element is presence o! a la"!ul consideration Consideration "ould generally mean compensation !or doing or omitting to do an act or deed It is also

re!erred to as quid pro quo vi: something in return !or another thing #uch a consideration should %e a la"!ul consideration /(ample3= A agrees to sell his %oo$s to < !or > 111, <s promise to pay > 111 is the consideration !or As promise to sell his %oo$s and As promise to sell the %oo$s is the consideration !or <s promise to pay > 111 9 )ot e(pressely declared to %e void3 The last element to clinch a contract is that the

agreement entered into !or this purpose must not %e "hich the la" declares to %e either illegal or void An illegal agreement is an agreement e(pressly or impliedly prohi%ited %y la" A void agreement is one "ithout any legal e!!ects 4or /(ample3 Threat to commit murder or ma$ingCpu%lishing de!amatory statements or entering into agreements "hich are opposed to pu%lic policy are illegal in nature #imilarly any agreement in restraint o! trade, marriage, legal proceedings etc are classic e(amples o! void agreements 1 0oid Contracts3 #ection 2 *2+ states as !ollo"s3 ,A contract "hich ceases to %e en!orcea%le %y la" %ecomes void "hen it ceases to %e en!orcea%le. Thus a void contract is one "hich cannot %e en!orced %y a court o! la" /(ample 3 @r D agrees to "rite a %oo$ "ith a pu%lisher A!ter !e" days, D dies in an accident ?ere the contract %ecomes void due to the impossi%ility o! per!ormance o! the contract It may %e added %y "ay o! clari!ication here that "hen a contract is void, it is not a contract at all %ut !or the purpose o! identi!ying it , it has to %e called a AvoidB contract 2 0oida%le Contract3 #ection 2AiB de!ines that an agreement "hich is en!orcea%le %y la" at the option o! one or more parties %ut not at the option o! the other or others is a voida%le contract This in!act means "here one o! the parties to the agreement is in a position or is legally entitled or authori:ed to avoid per!orming his part, then the agreement is treated and %ecomes voida%le #uch a right might arise !rom the !act that the contract may have %een %rought a%out %y one o! the parties %y coercion, undue in!luence, !raud or misrepresentation and hence the other party has a right to treat it as a voida%le contract At this 2uncture it "ould %e desira%le to $no" the distinction %et"een a void contract and a voida%le contract The distinctions lie in three aspects namely de!inition, nature and rights These are ela%orated hereunder3 *a+ Ee!inition3 A void contract cannot %e en!orced at all A voida%le contract is an agreement "hich is en!orcea%le only at the option o! one o! the parties %ut not at the option o! the other There!ore en!orcea%ility or other"ise, divides the t"o types o! contracts *%+ )ature3 <y nature, a void contract is valid at the time "hen it is made %ut %ecomes

unen!orcea%le and thus void on account o! su%sequent developments or events li$e supervening impossi%ility, su%sequent illegality etc , Fepudiation o! a voida%le contract also renders the contract void #imilarly a contingent contract might %ecome void "hen the occurrence o! the event on "hich it is contingent %ecomes impossi%le ;n the other hand voida%le contract "ould remain valid until it is rescinded %y the person "ho has the option to treat it as voida%le The right to treat it as voida%le does not invalidate the contract until such right is e(ercised All contracts caused %y coercion, undue in!luence, !raud, misrepresentation are voida%le Generally, a contract caused %y mista$e is void *c+ Fights3 As regards rights o! the parties, in the case o! a void contract there is no legal remedy !or the parties as the contract cannot %e per!ormed in any "ay In the case o! voida%le contract the aggrieved party has a right to rescind it "ithin a reasona%le time I! it is so rescinded, it %ecomes void I! it is not rescinded, it is a valid contract 5 Illegal Contracts3 Illegal contracts are those that are !or%idden %y la" All illegal contracts are hence void also <ecause o! the illegality o! their nature they cannot %e en!orced %y any court o! la" In !act even associated contracts cannot %e en!orced Contracts "hich are opposed to pu%lic policy or immoral are illegal #imilarly contracts to commit crime li$e supari contracts are illegal contracts The a%ove discussion sho"s that illegal contracts are at par "ith void contracts The Act speci!ies several !actors "hich "ould render an agreement void ;ne such !actor is unla"!ul nature o! contract or the consideration meant !or it Though illegal agreements and void agreements appear similar they di!!er in the !ollo"ing manner3 *a+ #cope3 All illegal agreements are void ?o"ever void agreements might not %e illegal at the time o! entering %ut "ould have %ecome void %ecause o! some other !actors 4or e(ample, "here the terms o! the agreement are uncertain the agreement "ould not %e illegal %ut might %e treated as void An illegal contract "ould encompass a void contract "here as a void contract may not include in its scope illegal contracts *%+ )ature and character3 Illegal agreements are void since the very %eginning they are invaria%ly descri%ed as void a% initio As already emphasi:ed under the scope, a contract %y nature, "hich is valid, can su%sequently change its character and can %ecome void *c+ /!!ect on collateral transactions3 In the case o! illegal contract, even the collateral transactions namely transactions "hich are to %e complied "ith %e!ore or a!ter or concurrently along "ith main contract also %ecome not en!orcea%le In contrast in the case o! voida%le contracts the collateral transactions can %e en!orced despite the !act that the main contract may have %ecome voida%le, to the e(tent the collateral transactions are capa%le o! %eing per!ormed independently

*d+ -enalty or punishment3 All illegal agreements are punisha%le under di!!erent la"s say li$e Indian -enal Code etc &hereas parties to void agreements do not !ace such penalties or punishments 4urther classi!ication o! contracts according to the !ormation is also possi%le Hnder this su%= classi!ication the !ollo"ing contracts !all3 6 /(press Contracts3 A contract "ould %e an e(press contract i! the terms are e(pressed %y "ords or in "riting #ection I o! the Act provides that i! a proposal or acceptance o! any promise is made in "ords the promise is said to %e e(press 9 Implied Contracts3 Implied contracts in contrast come into e(istence %y implication @ost o!ten the implication is %y la" and or %y action #ection I o! the Act contemplates such implied contracts "hen it lays do"n that in so !ar as such proposal or acceptance is made other"ise than in "ords, the promise is said to %e implied 4or instance A delivers goods %y mista$e at the "arehouse o! < instead o! that o! C ?ere < not %eing entitled to receive the goods is o%liged to return the goods to A although there "as no such contract to that e!!ect J Tacit Contracts3 Tacit contracts are those that are in!erred through the conduct o! parties A classic e(ample o! tacit contract "ould %e "hen cash is "ithdra"n %y a customer o! a %an$ !rom the automatic teller machine AAT@B Another e(ample o! o! tacit contract is "here a contract is assumed to have %een entered "hen a sale is given e!!ect to at the !all o! hammer in an auction sale 4urther classi!ication o! contracts is possi%le on the %asis o! their per!ormance They are3 7 /(ecuted Contract3 The consideration in a given contract could %e an act or !or%earance &hen the act is done or e(ecuted or the !or%earance is %rought on record, then the contract is an e(ecuted contract 8 /(ecutory Contract3 In an e(ecutory contract the consideration is reciprocal promise or o%ligation #uch consideration is to %e per!ormed in !uture only and there!ore these contracts are descri%ed as e(ecutory contracts I Hnilateral Contract3 Hnilateral contracts is a one sided contract in "hich only one party has to per!orm his duty or o%ligation 11 <ilateral Contracts3 A <ilateral contract is one "here the o%ligation or promise is outstanding on the part o! %oth the parties )o" let us ta$e a loo$ at yet another type o! classi!ication o! contracts !rom the vie" point o! /nglish 7a" Fevie" o! !undamentals

K K K K

0oid agreement= Agreement not en!orcea%le %y la" and is "ithout any legal e!!ect 0oid contract= 0alid at the time o! ma$ing %ut %ecomes void su%sequently due to change in 0oida%le contract= Agreement en!orcea%le at the option o! the aggrieved party Hntil the Illegal agreement=An agreement prohi%ited or !or%idden %y la" K /(press contract=

circumstances party "ont nulli!y, it remains valid &here parties orally or "ritten de!ines terms and conditions o! the contract K Implied contract=Contract in!erred !rom act ,conduct or !rom the circumstances o! the case /(ecuted contract= &hich has %een completely per!ormed %y all the parties /(ecutory contract= ;ne in "hich something remains to %e done %y all the parties <ilateral contracts= &here the o%ligations on the part o! %oth the parties are outstanding at the time o! !ormation o! the contract Hnilateral contract= &here only one party has to per!orm his duty or o%ligation -roposal C ;!!er It has %een e(plained in the previous paragraphs that a proposal or a promise %ac$ed %y legal consideration is an agreement and such an agreement, i! legally en!orcea%le, %ecomes a contract It "ould there!ore %e clear that the starting point o! this chain is a proposal or a promise It is proposed no" to discuss as to "hat is a proposalCo!!er, "hat are the types o! o!!er, etc The "ord proposal and the "ord o!!er mean one and the same thing and there!ore are used interchangea%ly In terms o! #ection 2*a+ o! the Act ,a person is said to ma$e a proposal "hen he signi!ies to another his "illingness to do or a%stain !rom doing anything "ith a vie" to o%taining the assent o! that other to such act or a%stinence. It must %e appreciated that doing an act and not doing an act %oth have the same e!!ect in the eyes o! the la", though one is a positive act and the other is a negative act ?ence there are t"o important ingredients to an o!!er 4irstly, it must %e e(pressions o! "illingness to do or to a%stain !rom doing an act #econdly, the "illingness must %e e(pressed "ith a vie" to o%tain the assent o! the other party to "hom the o!!er is made This can %e illustrated as !ollo"s3 *a+ &here ,A. tells ,<. that he desires to marry < %y the end o! 211J, there is no o!!er made unless, he also as$s ,"ill you marry me'., conveying his "illingness and tries to o%tain the assent

o! < in the same %readth *%+ &here ,A. o!!ers to sell his car to ,<. it conveys his "illingness to do an act Through this o!!er nor only "illingness is %eing conveyed %ut also an intention to o%tain the assent can %e seen Classification of offer3 ;!!er can %e classi!ied as general o!!er, specialCspeci!ic o!!er, cross o!!er, counter o!!er, standingCopenCcontinuing o!!er )o" let us e(amine each one o! them *a+ General o!!er3 It is an o!!er made to pu%lic at large "ith or "ithout any time limit In terms o! #ection 8 o! the Act, anyone per!orming the conditions o! the o!!er can %e considered to have accepted the o!!er *Carlill v Car%olic #mo$e <all+ Hntil the general o!!er is retracted or "ithdra"n, it can %e accepted %y anyone at any time as it is a continuing o!!er *%+ #pecialCspeci!ic o!!er3 &here an o!!er is made to a particular and speci!ied person, it is a speci!ic o!!er ;nly that person can accept such speci!ic o!!er, as it is special and e(clusive to him A<oulton v LonesB *c+ Cross o!!er3 As per section 2*%+, "hen a person to "hom proposal *o!!er+ is made signi!ies his assent, the proposal is said to %e accepted Thus, assent can %e only to a proposal I! there "as no proposal, question o! its acceptance cannot arise 4or e(ample, i! A ma$es a proposal to < to sell some goods at a speci!ied price and <, "ithout $no"ing proposal o! A, ma$es a proposal to purchase the same goods at the price speci!ied in the proposal o! A, it is not an acceptance, as < "as not a"are o! proposal made %y A It is only cross proposal *cross o!!er+ And "hen t"o persons ma$e o!!er to each other, it can not %e treated as mutual acceptance There is no %inding contract in such a case ATin v ?o!!men 8 Co 1875B *d+ Counter o!!er3 Hpon receipt o! an o!!er !rom an o!!eror, i! the o!!eree instead o! accepting it straight"ay, imposes conditions "hich have the e!!ect o! modi!ying or varying the o!!er, he is said to have made a counter o!!er Counter o!!ers amounts to re2ection o! original o!!er *e+ #tanding or continuing or open o!!er3 An o!!er "hich is made to pu%lic at large and i! it is $ept open !or pu%lic acceptance !or a certain period o! time, it is $no"n as standing or continuing or open o!!er Tenders that are invited !or supply o! materials and goods are classic e(amples o! standing o!!er Fules relating to o!!er3 4ollo"ing are the rules !or a valid and legal o!!er3 *a+ The o!!er must %e "ith intent to create a legal relationship ?ence i! it is accepted, it must result in a valid contract An invitation to 2oin a !riend !or dinner is a social activity This does not create a legal relationship or right or o%ligation *%+ The o!!er must %e certain and de!inite It must not %e vague I! the terms are vague, it is not capa%le o! %eing accepted as the vagueness "ould not create any contractual relationship 4or

e(ample, "here A o!!ers to sell 111 quintals o! oil, "ithout indicating "hat $ind o! oil "ould %e sold, it is a vague o!!er and hence cannot create any contractual relationship I! ho"ever there is a mechanism to end the vagueness, the o!!er can %e treated as valid 4or e(ample, in the a%ove e(ample i! A does not deal in any oil %ut only in gingilee oil and this is $no"n to every one, the o!!er cannot %e treated as vague o!!er This is !or the reason that the trade in "hich A is, is a clear indicator providing a mechanism to understand the terms o! o!!er *c+ *!+ The o!!er must %e e(press or implied *d+ The o!!er must %e distinguished !rom an invitation to o!!er *e+ The o!!er must %e either speci!ic or general The o!!er must %e communicated to the person to "hom it is made ;ther"ise the o!!eree cannot accept the o!!er ?e cannot accept the o!!er %ecause he is not a"are o! the e(istence o! the o!!er #uch a situation does not create any legal o%ligation or right on any one *g+ The o!!er must %e made "ith a vie" to o%taining the consent o! the o!!eree *h+ An o!!er can %e conditional %ut there should %e no term in the o!!er that non=compliance "ould amount to acceptance Thus the o!!eror cannot say that i! non=acceptance is not communicated %y a certain time the o!!er "ould %e treated as accepted &hat is invitation to o!!er' An o!!er and invitation to o!!er are not one and the same The di!!erence %et"een the t"o must %e appreciated An o!!er is de!inite It is an intention to"ards a contract An invitation to o!!er is an act precedent to ma$ing an o!!er It is done "ith intent to generally to induce and negotiate An invitation to o!!er gives rise to an o!!er a!ter due negotiation and it cannot %e per se accepted In an invitation to o!!er there is no e(pression o! "illingness %y the o!!eror to %e %ound %y his o!!er It is only a proposal o! certain terms on "hich he is "illing to negotiate It is not capa%le o! %eing accepted as it is &hen there is advertisement %y a person he has a stoc$ o! %oo$s !or sale, it is an invitation to o!!er and not an o!!er This advertisement is made to receive o!!ers and to !urther negotiate In terms o! #ection 2AaB o! the Act, it is very clear that an o!!er is the !inal e(pression o! "illingness %y the o!!eror to %e %ound %y the o!!er i! it is accepted %y the other party ?ence the only thing that is required is the "illingness o! the o!!eree to a%ide %y the terms o! o!!er The test to decide "hether a statement is an o!!er or invitation to o!!er is to see the intention I! a person "ho ma$es the statement has the intention to %e %ound %y it as soon as the other accepts, he is ma$ing an o!!er I! he ho"ever intends to do some other act, he is ma$ing only an invitation to o!!er Thus the intention to %e %ound is the important thing, "hich is to %e seen In ?arvey vs 4acie A18I5B AC 992 -rivy Council succinctly e(plained the distinction %et"een an

o!!er and an invitation to o!!er In the given case, the plainti!!s through a telegram as$ed the de!endants t"o questions namely, *i+ *ii+ &ill you sell us <umper ?all -en' and Telegraph lo"est cash price

The de!endants replied through telegram that the ,lo"est price !or <umper ?all -en is MI11. The plainti!!s sent another telegram stating ,"e agree to %uy <umper ?all -en at MI11 . ?o"ever the de!endants re!used to sell the property at the price The plainti!!s sued the de!endants contending that they had made an o!!er to sell the property at MI11 and there!ore they are %ound %y the o!!er ?o"ever the -rivy Council did not agree "ith the plainti!!s on the ground that "hile plainti!!s had as$ed t"o questions, the de!endant replied only to the second question %y quoting the price %ut did not ans"er the !irst question %ut reserved their ans"er "ith regard to their "illingness to sell Thus they made no o!!er at all Their 7ordships held that the mere statement o! the lo"est price at "hich the vendor "ould sell contained no implied contract to sell to the person "ho had enquired a%out the price The a%ove decision "as !ollo"ed in @ac -herson vs Appanna A1I91B A # C 186 "here the o"ner o! the property had said that he "ould not accept less than > J111C= !or it This statement did not indicate any o!!er %ut indicated only an invitation to o!!er #imilarly "hen goods are sold through auction, the auctioneer does not contract "ith any one "ho attends the sale The auction is only an advertisement to sell %ut the items are not put !or sale though persons "ho have come to the auction may have the intention to purchase An invitation %y a company to the pu%lic to su%scri%e !or its shares Eisplay o! goods !or sale in shop "indo"s Advertising auction sales and Nuotation o! prices sent in reply to a query regarding price K K K K K K K K ;!!er=An e(pression o! "illingness o! o!!eror to an o!!reee to do or to a%stain !rom doing Agreement=An accepted o!!erCproposal -romisor= -erson ma$ing the proposal -romisee= -erson accepting the proposal /(press ;!!er=/(pressed %y "rittenCspo$en "ords Implied o!!er=/(pressed other than in "ritten Cspo$en "ords #peci!ic o!!er=;!!er made to a speci!ic person General o!!er=;!!er made to the pu%lic at large

anything,"ith a vie" to o%tain the assent o! an o!!eree and to enter him into a contract

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Cross o!!ers= Identical o!!ers made in ignorance to each other Counter o!!ers= ;!!er accepted on the terms and conditions other than set out %y the o!!eror #tanding o!!er= ;!!er open !or acceptance over period o! time

K 7egal rules !or valid o!!er=Ee!inite and certain, made "ith an intention to create legal relations and must %e communicated K o!!er 1 9 Acceptance The signi!icance o! ,acceptance o! a proposal so as to !orm an agreement has %een discussed in previous paragraphs 7et us analyse various issues concerning acceptance no", @eaning3 In terms o! #ection 2*%+ o! the Act, , A proposal or o!!er is said to have %een accepted "hen the person to "hom the proposal is made signi!ies his assent to the proposal to do or not to do something. In short, act o! acceptance lies in signi!ying ones assent to the proposal Felationship %et"een o!!er and acceptance3 According to #ir &illiam Anson ,Acceptance is to o!!er "hat a lighted match is to a train o! gun po"der. The e!!ect o! this o%servation is that "hat acceptance triggers cannot %e recalled or undone <ut there is a choice to the person "ho had the train to remove it %e!ore the match is applied It in e!!ect means that the o!!er can %e "ithdra"n 2ust %e!ore it is accepted Acceptance converts the o!!er into a promise and then it is too late to revo$e it This means as soon as the train o! gun po"der is lighted it "ould e(plode Gun po"der Athe trainB itsel! is inert, %ut it is the lighted match Athe acceptanceB "hich causes the gun po"der to e(plode The signi!icance o! this is an o!!er %y itsel! cannot create any legal relationship %ut it is the acceptance %y the o!!eree "hich creates a legal relationship ;nce an o!!er is accepted it %ecomes a promise and cannot %e "ithdra"n or revo$ed An o!!er remains an o!!er so long as it is not accepted, %ut %ecomes a contract as soon as it is accepted Fules governing acceptance *1+ Acceptance must %e a%solute and unquali!ied3 As per #ection 7 o! the Act, acceptance is valid only "hen it is a%solute and unquali!ied and is also e(pressed in some usual and reasona%le manner unless the proposal prescri%es the manner in "hich it must %e accepted I! the proposal prescri%es the manner in "hich it must %e accepted, then it must %e accepted accordingly The a%ove vie" "ill %e clear !rom the !ollo"ing e(ample3 A enquires !rom <, ,&ill you purchase my car !or > 2 la$hs'. I! < replies ,I shall purchase your car !or > 2 la$hs, i! you %uy my motorcycle !or > 91111C=, here < cannot %e considered to Invitation to an o!!er=;ne party invites other party to ma$e an o!!er i e , an o!!er to ma$e an

have accepted the proposal I! on the other hand < agrees to purchase the car !rom A as per his proposal su%2ect to availa%ility o! valid Fegistration Certi!icate C %oo$ !or the car, then the acceptance is in place though the o!!er contained no mention o! F C %oo$ This is %ecause e(pecting a valid title !or the car is not a condition There!ore the acceptance in this case is unconditional *2+ The acceptance must %e communicated3 To conclude a contract %et"een the parties, the acceptance must %e communicated in some percepti%le !orm Any conditional acceptance or acceptance "ith varying or too deviant conditions is no acceptance #uch conditional acceptance is a counter proposal and has to %e accepted %y the proposer, i! the original proposal has to materiali:e into a contract 4urther "hen a proposal is accepted, the o!!eree must have the $no"ledge o! the o!!er made to him I! he does not have the $no"ledge, there can %e no acceptance The acceptance must relate speci!ically to the o!!er made Then only it can materiali:e into a contract The a%ove points "ill %e clearer !rom the !ollo"ing e(amples, *a+ @ o!!ered to sell his land to ) !or O 281 ) replied purporting to accept the o!!er %ut enclosed a cheque !or O 81 only ?e promised to pay the %alance o! O 211 %y monthly installments o! O 91 each It "as held that ) could not en!orce his acceptance %ecause it "as not an unquali!ied one A)eale vs @erret A1I51B & ) 18IB *%+ A o!!ers to sell his house to < !or > 1111C= < replied that, , I can pay > 811 !or it The o!!er o! A is re2ected %y < as the acceptance is not unquali!ied < ho"ever changes his mind and is prepared to pay > 1111C= This is also treated as counter o!!er and it is upto A "hether to accept it or not AHnion o! India v <ahulal AIF 1IJ8 <om%ay 2I6B A mere variation in the language not involving any di!!erence in su%stance "ould not ma$e the acceptance ine!!ective A?ey"orth vs Pnight A18J6B 166 /F 121B *5+ Acceptance must %e in the prescri%ed mode3 &here the proposal prescri%es the mode o! acceptance, it must %e accepted in that manner &here the proposal does not prescri%e the manner, then it must %e accepted in a reasona%le manner I! the proposer does not insist on the proposal %eing accepted in the manner in "hich it has to %e accepted, a!ter it is accepted in any other manner not originally prescri%ed, the proposer is presumed to have consented to the acceptance #ometimes the acceptor may agree to a proposal %ut may insist on a !ormal agreement, in "hich case until a !ormal agreement is dra"n up there is no complete acceptance *6+ The acceptance must %e given "ithin a reasona%le time and %e!ore the o!!er lapses *9+ @ere silence is not acceptance The acceptor should e(pressly accept the o!!er Acceptance can %e implied also Acceptance must %e given only %y that person to "hom it is made, that too only a!ter $no"ing a%out the o!!er made to him

*J+ Acceptance %y conduct3 As already ela%orated a%ove, acceptance has to %e signi!ied either in "riting or %y "ord o! mouth or %y per!ormance o! some act The last o! the method, namely %y some act has to %e understood as acceptance %y conduct In a case li$e this "here a person per!orms the act intended %y the proposer as the consideration !or the promise o!!ered %y him, the per!ormance o! the act constitutes acceptance In other "ords, there is an acceptance %y conduct 4or e(ample, "here a tradesman receives an order !rom a customer, and the order is e(ecuted accordingly %y the trader, there is an ,acceptance %y conduct. o! the o!!er made %y the customer The traders su%sequent act signi!ies acceptance #ection 8 o! the Act very clearly in this regard lays do"n that , the per!ormance o! the condition*s+ o! a proposal or the acceptance o! any consideration o! a reciprocal promise "hich may %e o!!ered "ith a proposal constitutes an acceptance o! the proposal Fevie" o! !undamentals K K K Acceptance= Assent o! o!!eree to a proposal ;n acceptance o! proposal, proposer is called as Acceptance is irreversi%le as once it is given and reaches to the proposer it cannot%e Fules !or valid acceptance= It must %e a%solute and unquali!ied, communicated, and must %e promisor and o!!eree as promisee recalled, in the prescri%ed mode and given "ithin a reasona%le time 1 J Communication o! ;!!er and Acceptance The importance o! o!!er and acceptance in giving e!!ect to a valid contract "as e(plained in the previous paragraphs ;ne important common requirement !or %oth o!!er and acceptance is their e!!ective communication /!!ective and proper communication prevents avoida%le revocation and misunderstanding %et"een parties The communication part o! it assumes importance %ecause parties are separated %y and distance In "hich case the modes o! communication li$e, postCcourier, telegram, !a(, email, telephone etc , %ecome very relevant %ecause the method o! communication "ould also decide the time o! o!!er and acceptance The Indian Contract Act,1872 gives a lot o! importance to ,time. element in deciding "hen the o!!er and acceptance is complete Communication o! o!!er3 In terms o! #ection 6 o! the Act, , the communication o! o!!er is complete "hen it comes to the $no"ledge o! the person to "hom it is made. There!ore $no"ledge o! communication is o! relevance Pno"ledge o! the o!!er "ould materiali:e "hen the o!!er is given in "riting or made %y "ord o! mouth or %y some other conduct This can %e

e(plained %y an e(ample &here A ma$es a proposal to < %y post to sell his house !or > 9 la$hs and i! the letter containing the o!!er is posted on 11th @arch and i! that letter reaches < on 12th @arch the o!!er is said to have %een communicated on 12th @arch "hen < received the letter Thus it can %e summed up that "hen a proposal is made %y post, its communication "ill %e complete "hen the letter containing the proposal reaches the person to "hom it is made Communication o! acceptance3 There are t"o issues !or discussion and understanding They are3 "hat are the modes o! acceptance and "hen is acceptance complete' 7et us, !irst consider the modes o! acceptance #ection 5 o! the Act prescri%es in general terms t"o modes o! communication namely, *a+ %y any act and *%+ %y omission, intending there%y to, to communicate to the other or "hich has the e!!ect o! communicating it to the other Communication %y act "ould include any e(pression o! "ords "hether "ritten or oral &ritten "ords "ill include letters, telegrams, !a(es, emails and even advertisements ;ral "ords "ill include telephone messages Again communication "ould include any conduct intended to communicate li$e positive acts or signs so that the other person understands "hat the person acting or ma$ing signs means to say or convey Communication can also %e %y omission to do any or something #uch omission is conveyed %y a conduct or %y !or%earance on the part o! one person to convey his "illingness or assent ?o"ever silence "ould not %e treated as communication %y omission Communication o! acceptance is also done %y conduct 4or instance, delivery o! goods at a price %y a seller to a "illing %uyer "ill %e understood as a communication %y conduct to convey acceptance #imilarly one need not e(plain "hy one %oards a pu%lic %us or drop a coin in a "eighing machine The !irst act is a conduct o! acceptance and its communication to the o!!er %y the pu%lic transport authority to carry any passenger The second act is again a conduct conveying acceptance to use the "eighing machine $ept %y the vending company as an o!!er to render that service !or a consideration The other issue in communication o! acceptance is a%out the e!!ect o! act or omission or conduct These indirect e!!orts must result in e!!ectively communicating its acceptance or non acceptance I! it has no such e!!ect, there is no communication regardless o! "hich the acceptor thin$s a%out the o!!er "ithin himsel! Thus a mere mental unilateral assent in ones o"n mind "ould not amount to communication &here a resolution passed %y a %an$ to sell land to A remained uncommunicated to A, it "as held that there "as no communication and hence no contract ACentral <an$ Qeotmal vs 0yan$atesh *1I6I+ A )ag 28JB

7et us no" come to the issue o! "hen communication o! acceptance is complete In terms o! #ection 6 o! the Act, it is complete, *i+ *ii+ As against the proposer, "hen it is put in course o! transmission to him so as to %e out o! the As against the acceptor, "hen it comes to the $no"ledge o! the proposer po"er o! the acceptor to "ithdra" the sameR

&here a proposal is accepted %y a letter sent %y the post, the communication o! acceptance "ill %e complete as against the proposer "hen the letter o! acceptance is posted and as against the acceptor "hen the letter reaches the proposer 4or instance in the a%ove e(ample, i! < accepts, As proposal and sends his acceptance %y post on 16th, the communication o! acceptance as against A is complete on 16th, "hen the letter is posted As against < acceptance "ill %e complete, "hen the letter reaches A ?ere A the proposer "ill %e %ound %y <s acceptance, even i! the letter o! acceptance is delayed in post or lost in transit The golden rule is proposer %ecomes %ound %y the contract, the moment acceptor has posted the letter o! acceptance <ut it is necessary the letter is correctly addressed, su!!iciently stamped and duly posted In such an event the loss o! letter in transit, "rong delivery, non delivery etc , "ill not a!!ect the validity o! the contract ?o"ever !rom the vie" point o! acceptor, he "ill %e %ound %y his acceptance only "hen the letter o! acceptance has reached the proposer #o it is crucial in this case that the letter reaches the proposer I! there is no delivery o! the letter, the acceptance could %e treated as having %een completed !rom the vie"point o! proposer %ut not !rom the vie"point o! acceptor ;! course this "ill give rise to an a"$"ard situation o! only one party to the contract %eing treated as %ound %y the contract though no one "ould %e sure as to "here the letter o! acceptance had gone Communication o! special conditions3 #ometimes there are situation "here there are contracts "ith special conditions These special conditions are conveyed tacitly and the acceptance o! these conditions are also conveyed %y the o!!eree again tacitly or "ithout him even reali:ing it 4or instance "here a passenger underta$es a travel, the conditions o! travel are printed at the %ac$ o! the tic$ets, sometimes these special conditions are %rought to the notice o! the passenger, sometimes not In any event, the passenger is treated as having accepted the special condition the moment he %ought his tic$et &hen someone travels !rom one place to another %y air, it could %e seen that special conditions are printed at the %ac$ o! the air tic$et in small letters Ain a non computeri:ed train tic$et even these are not printedB #ometimes these conditions are !ound to have %een displayed at the notice %oard o! the Air lines o!!ice, "hich passengers may not have cared to read The question here is "hether these condition can %e considered to have %een communicated to the passengers o! the

Airlines and can the passengers %e treated as having accepted the conditions The ans"er to the question is in the a!!irmative and "as so held in @u$ul Eatta vs Indian Airlines A1IJ2B AIF cal 516 "here the plainti!! had travelled !rom Eelhi to Pol$ota %y air and the tic$et %ore conditions in !ine print Qet another e(ample is "here a launderer gives his customer a receipt !or clothes received !or "ashing The receipt carries special conditions and are to %e treated as having %een duly communicated to the customer and therein a tacit acceptance o! these conditions is implied %y the customers acceptance o! the receipt A7ily &hite vs F @uthus"ami A1IJJB A @ad 15B In the cases re!erred a%ove, the respective documents have %een accepted "ithout a protest and hence amounted to tacit acceptance #tandard !orms o! contracts3 It is "ell esta%lished that a standard !orm o! contract may %e en!orced on another "ho is su%2ectively una"are o! the contents o! the document, provided the party "anting to en!orce the contract has given notice "hich, in the circumstances o! a case, is su!!iciently reasona%le <ut the acceptor "ill not incur any contractual o%ligation, i! the document is so printed and delivered to him in such a state that it does not give reasona%le notice on its !ace that it contains certain special conditions In this connection, let us consider a converse situation A transport carrier accepted the goods !or transport "ithout any conditions #u%sequently, he issued a circular to the o"ners o! goods limiting his lia%ility !or the goods In such a case, since the special conditions "ere not communicated prior to the date o! contract !or transport, these "ere not %inding on the o"ners o! goods AFaipur transport Co vs Ghanshyam A1I9JB A )ag 169B 1 7 Communication o! -er!ormance &e have already discussed that in terms o! #ection 6 o! the Act, communication o! a proposal is complete "hen it comes to the $no"ledge o! the person to "hom it is meant As regards acceptance o! the proposal, the same "ould %e vie"ed !rom t"o angles These are *i+ !rom the vie"point o! proposer and *ii+ the other !rom the vie"point o! acceptor himsel! 4rom the vie"point o! proposer, "hen the acceptance is put in to a course o! transmission, "hen it "ould %e out o! the po"er o! acceptor 4rom the vie"point o! acceptor, it "ould %e complete "hen it comes to the $no"ledge o! the proposer At times the o!!eree may %e required to communicate the per!ormance *or act+ %y "ay o! acceptance In this case it is not enough i! the o!!eree merely per!orms the act %ut he should also communicate his per!ormance unless the o!!er includes a term that a mere per!ormance "ill constitute acceptance The position "as clearly e(plained in the !amous case o! Carlill 0s

Car%olic 8 #mo$e%all Co In this case the de!endant a sole proprietary concern manu!acturing a medicine "hich "as a car%olic %all "hose smo$e could %e inhaled through the nose to cure in!luen:a, cold and other connected ailments issued an advertisement !or sale o! this medicine The advertisement also included a re"ard o! S111 to any person "ho contracted in!luen:a, a!ter using the medicine *"hich "as descri%ed as car%olic smo$e %all+ @rs Carlill %ought these smo$e %alls and used them as directed %ut contracted in!luen:a It "as held that @rs Carlill "as entitled to a re"ard o! S111 as she had per!ormed the condition !or acceptance 4urther as the advertisement did not require any communication o! compliance o! the condition, it "as not necessary to communicate the same The court thus in the process laid do"n the !ollo"ing three important principles3 *i+ *ii+ an o!!er, to %e capa%le o! acceptance, must contain a de!inite promise %y the o!!er or that he an o!!er may %e made either to a particular person or to the pu%lic at large, and "ould %e %ound provided the terms speci!ied %y him are acceptedR *iii+ i! an o!!er is made in the !orm o! a promise in return !or an act, the per!ormance o! that act, even "ithout any communication thereo!, is to %e treated as an acceptance o! the o!!er Fevie" o! !undamentals K ;ne important common requirement !or %oth o!!er and acceptance is their e!!ective communication The Indian Contract Act,1872 gives a lot o! importance to ,time. element in deciding "hen the o!!er and acceptance is complete K K Communication o! o!!er is complete= &hen it comes to the $no"ledge o! the person to Communication o! acceptance is complete= *i+ Against the proposer="hen it is put into the "hom it is made course o! transmission to the proposer *ii+ Against the acceptorT"hen it comes to the $no"ledge o! the o!!eror 1 8 Fevocation o! ;!!er and Acceptance I! there are speci!ic requirements governing the ma$ing o! an o!!er and the acceptance o! that o!!er, "e also have speci!ic la" governing their revocation In term o! #ection 6, communication o! revocation *o! the proposal or its acceptance+ is complete *i+ *ii+ as against the person "ho ma$es it "hen it is put into a course o! transmission to the person as against the person to "hom it is made, "hen it comes to his $no"ledge to "hom it is made so as to %e out o! the po"er o! the person "ho ma$es it, and The a%ove la" can %e illustrated as !ollo"s3= I! you revo$e your proposal made to me %y a

telegram, the revocation "ill %e complete, as !or as you are concerned "hen you have dispatched the telegram <ut as !ar as I am concerned, it "ill %e complete only "hen I receive the telegram As regards revocation o! acceptance, i! you go %y the a%ove e(ample, I can revo$e my acceptance *o! your o!!er+ %y a telegram This revocation o! acceptance %y me "ill %e complete "hen I dispatch the telegram and against you, it "ill %e complete "hen it reaches you <ut the important question !or consideration is "hen a proposal can %e revo$ed' And "hen can an acceptance %e revo$ed' These questions are more important than the question "hen the revocation *o! proposal and acceptance+ is complete In terms o! #ection 9 o! the Act a proposal can %e revo$ed at any time %e!ore the communication o! its acceptance is complete as against the proposer An acceptance may %e revo$ed at any time %e!ore the communication o! acceptance is complete as against the acceptor Fevocation o! proposal other"ise than %y communication3 &hen a proposal is made, the proposer may not "ait inde!initely !or its acceptance The o!!er can %e revo$ed other"ise than %y communication or sometimes %y lapse 4ollo"ing are the situations "orth noting in this regard *i+ &hen the acceptor !ails to !ul!ill certain conditions precedent to acceptance3= &here the acceptor !ails to !ul!ill a condition precedent to acceptance the proposal gets revo$ed This principle is laid do"n in #ection J o! the Act The o!!eror !or instance may impose certain conditions such as e(ecuting a certain document or depositing certain amount as earnest money 4ailure to satis!y any condition "ill result in lapse o! the proposal As stated earlier condition precedent to acceptance prevents an o%ligation !rom coming into e(istence until the condition is satis!ied #uppose "here A proposes to sell his house to %e < !or > 9 la$hs provided < leases his land to A I! < re!uses to lease the land, the o!!er o! A is revo$ed automatically *ii+ &hen the proposer dies or goes insane3 Eeath or insanity o! the proposer "ould result in automatic revocation o! the proposal %ut only i! the !act o! death or insanity comes to the $no"ledge o! the acceptor *iii+ &hen time !or acceptance lapses3 The time !or acceptance can lapse i! the acceptance is not given "ithin the speci!ied time and "here no time is speci!ied, then "ithin a reasona%le time This is !or the reason that proposer should not %e made to "ait inde!initely It "as held in Famsgate 0ictoria ?otel Co 0s @onte!iore *18JJ 7 F U /( 11I+, that a person "ho applied !or shares in Lune "as not %ound %y an allotment made in )ovem%er This decision "as also ?o"ever these !ollo"edinIndiaCooperative)avigationandTradingCo7td0s-adamsey-remLi

decisions no" "ill have no relevance in the conte(t o! allotment o! shares since The Companies

Act, 1I9J has several provisions speci!ically covering these issues Fevie" o! !undamentals Communication o! revocation as against the person "ho ma$es it, completes= "hen it is put into the course o! transmission to the person to "hom it is made K Communication o! revocation as against the person to "hom it is made, completes= "hen it comes to his $no"ledge K Fevocation o! proposal and acceptance is complete= at any time %e!ore the communication o! acceptance is complete as against the proposer and the acceptor, %ut not a!ter"ards 7earning o%2ectives A!ter studying this unit, you "ould %e a%le to = K K Hnderstand the concept o! consideration, its importance !or a contract and its dou%le aspect Clearly understand ho" consideration may move !rom a third party and ho" this ma$es

the contract valid K 7earn a%out the peculiar circumstances "hen a contract is valid even "ithout consideration K <e a"are o! the rule VA stranger to a contract cannot sueV and e(ceptions thereo! In the previous unit "e learnt that one o! the important elements o! contract is ,consideration. Inthis unit the concept o! consideration and the legal requirements !or consideration are discussed 1 I &hat is Consideration' The e(pression consideration has to %e understood as a price paid !or an o%ligation In Curie 0s @isa 1879 11 /( 151 is "as held *in H P+ that consideration is ,some right, interest, pro!it or %ene!it accruing to one party or !or%earance, detriment, loss, or responsi%ility given, su!!ered or under ta$en %y the other. The 2udgment thus re!ers to the position o! %oth the promisor, and the promisee in an agreement #ection 2 *d+ o! the Act de!ines consideration as "hen at the desire o! the promisor, the promisee or any other person has done or a%stained !rom doing, or does or a%stains !rom doing or promises to do or a%stain !rom doing something, such an act or a%stinence or promise is called consideration !or the promise 4rom the a%ove de!inition it can %e in!erred that, Consideration is doing or not doing something, "hich the promisor desires to %e done or not done *1+ *2+ *5+ Consideration must %e at the desire o! the promisor Consideration may move !rom one person to any other person Consideration may %e past, present or !uture and

*6+

Consideration should %e real though not adequate

In most cases the promisor !or doing an act or not doing an act derives some %ene!it %y "ay o! consideration This consideration is identi!ied as quid pro quo !rom its promise o! the promisor <ut it is also possi%le that there may not %e any identi!ia%le %ene!it to"ards consideration 4or e(ample A promises to carry < goods !ree o! charge and < allo"s A to carry the same ?ere < does not o!!er any consideration to A Is this a valid contract' The ans"er to the question is < has su!!ered a detriment or disadvantage "hile allo"ing A to carry his goods ?ere there is su!!icient consideration This illustration is given essentially to prove the point that consideration could %e not necessarily a gain or advantage to the promisor %ut it can even %e a loss or detriment to the promisee That is "hy consideration is re!erred to as a concept "ith dou%le aspect &here Q applies !or a loan o! > 11,111C= to D, and i! D insists on a guarantee %y # and upon # guaranteeing the loan, D gives the loan to ,Q. In this case # "ill %e the promisor and D the promisee The %ene!it in this transaction con!erred on Q %y D at the guarantee o! #, is su!!icient consideration !or D In other "ords D has su!!ered a detriment "hich is the consideration !or the guarantee o! # to repay the loan "hich D has given to Q Eetriment to one is %ene!it to another It can o!ten %e seen that consideration is mutual 4or instance i! A promises to sell his house to < !or > 9 la$hs ,here ,A. is the promisor and ,<. is the promisee In the same transaction "here < agrees to %uy the house !or > 9 la$hs, < "ill %e the promisor and A "ill %e the promisee ?ere A must part "ith the house and < must part "ith > 9 la$hs This proves the point that consideration is mutual and has t"o sides &hether gratuitous promise can %e en!orced' The "ord ,gratuitous. means !ree o! cost or "ithout e(pecting any return It can there!ore %e in!erred that a gratuitous promise "ill not result in an agreement in the a%sence o! consideration 4or instance a promise to su%scri%e to a charita%le cause cannot %e en!orced 1 11 7egal Fequirements Fegarding Consideration *i+ Consideration must move at the desire o! the promisor3 Consideration must move at the desire o! the promisor, either !rom the promisee or some other third party <ut consideration cannot move at the desire o! a third party &here collector had passed an order that any one using the mar$et constructed %y the Uamindar, !or the purpose o! selling his goods should pay commission to the Uamindar, it "as held that it "as not a proper order as the desire to receive consideration had not emanated !rom the Uamindar %ut !rom a third party namely the collector

*Eurga -rasad 0s <aldev *1881+ 5, All 221+ *ii+ Consideration can !lo" either !rom the promisee or any other person3 The consideration !or a contract can move either !rom the promisee or !rom any other person This point is made clear even %y the de!inition o! the "ord ,consideration., according to "hich at the desire o! the promisor, the promisee or any other person, doing something is consideration That the consideration can legitimately move !rom a third party is an accepted principle o! la" in India though not in /ngland A %y a deed o! gi!t made over certain property to her daughter "ith condition that her %rother should %e paid annuity %y As daughter ;n the same day As daughter e(ecuted a document agreeing to pay annuity accordingly %ut declined to pay a!ter sometime As %rother sued As daughter It "as contended on %ehal! o! As daughter, that there "as no consideration !rom As %rother and hence there "as no valid contract This plea "as re2ected on the ground that the consideration did !lo" !rom As mother to A and such consideration !rom third party is su!!icient to en!orce the promise o! As daughter to en!orce her promise to pay annuity to As %rother AChinya 0s Famaya*1881+ a mad 157B Thus a stranger to a contract can sue upon a contract in India and also in /ngland, "here a stranger to a consideration can sue under Indian la" though not under /nglish la" *iii+ /(ecuted and /(ecutory consideration3 &here consideration consists o! per!ormance, it is called ,e(ecuted. consideration &here it consists only o! a promise, it is e(ecutory 4or e(ample "here A pays > 9111C= to < requesting < to deliver certain quantity o! rice, to "hich < agrees, then here consideration !or < is e(ecuted %y A as he has already paid > 9111C= "hereas <s promise is e(ecutory as he is yet to deliver the rice Insurance contracts are o! the same type &hen A pays a premium o! > 9111C= see$ing insurance cover !or the year, !rom the insurance company "hich the company promises in the event o! !ire, the consideration paid %y A to the insurance company is e(ecuted %ut the promise o! insurance company is e(ecutory or yet to %e e(ecuted A !or%earance %y the promisor should ho"ever %e considered as an e(ecuted consideration provided the !or%earance is su!!icient at the time o! contract *iv+ -ast consideration3 The ne(t issue is "hether past consideration can %e treated as consideration at all This is %ecause consideration is given and accepted along "ith a promise concurrently ?o"ever the Act recogni:es past consideration as consideration "hen it uses the e(pression in #ection 2*d+ has done or a%stained !rom doing. <ut in the event o! services %eing rendered in the past at the request or desire o! the promisor the su%sequent promise is regarded as an admission that the past consideration "as not gratuitous The plainti!! rendered services to the de!endant at his desire during his minority ?e also continued to render the same services a!ter the

dependant attained ma2ority It "as held to %e good consideration !or a su%sequent e(press promise %y the de!endant to pay an annuity to the plainti!! %ut it "as admitted that i! the services had not %een rendered at the desire o! the de!endant it "ould %e hit %y #ection 29 o! the Act *#india 0s A%raham *1I89+U <om 799+ *v+ Adequacy o! Consideration3 Consideration need not necessarily %e o! the same value as o!

the promise !or "hich it is e(changed <ut it must %e some thing "hich can %e inadequate as "ell Inadequate consideration "ould not invalidate an agreement %ut such inadequate consideration could %e ta$en into account %y the court in deciding "hether the consent o! the promisor "as !reely given In Chi22itumal 0s Fampal #ingh AIF, 1IJ8, the #upreme Court reiterated that consideration need not %e material and may %e even a%sent In the said case, the !ather had died leaving his house to t"o sons They had agreed to partition the house "hich did not admit the division in e(actly equal parts and one o! the sons had agreed not to construct a door at a certain place in his portion o! the house In a dispute, the agreement "as challenged on the ground that it "as "ithout adequate consideration The #upreme Court came to the conclusion that the motive !or the said agreement at the time "hen it "as made, "as to avoid any dispute in !uture, and held that it "as su!!icient consideration The a%ove vie" is in tune "ith e(planation 2 to #ection 29 o! the Act, "hich provides that an agreement to "hich the consent o! the promisor is !reely given is not void merely %ecause the consideration is inadequate &here there is valua%le consideration, Court "ill not inter!ere and inquire into the adequacy o! it %ut leave the matter to the parties to ma$e their o"n %argain <ut inadequate consideration might raise suspicion a%out the !ree "ill o! the promisor -romisor could %e treated as victim o! some imposition %ut this "ould not render the agreement void *vi+ -er!ormance o! "hat one is legally %ound to per!orm3 The per!ormance o! an act %y a person "ho is legally %ound to per!orm the same cannot %e consideration !or a contract ?ence, a promise to pay money to a "itness is void, !or it is "ithout consideration ?ence such a contract is void !or "ant o! consideration #imilarly, an agreement %y a client to pay to his counsel a!ter the latter has %een engaged, a certain sum over and a%ove the !ee, in the event o! success o! the case "ould %e void, since it is "ithout consideration <ut "here a person promises to do more than he is legally %ound to do, such a promise provided it is not opposed to pu%lic policy, is a good consideration 4or instance during a civil stri$e, a question arose as to ho" %est to protect a coal mine The police authorities thought that

surveillance %y a mo%ile !orce "ould %e adequate %ut the colliery manager desired a stationary police guard Hltimately it "as agreed that the police authorities "ould provide a stationary guard and the manager "ould pay S2,211 !or the service It "as held that the promise to pay the amount "as not "ithout consideration The police, no dou%t, "ere %ound to a!!ord protection, %ut they had discretion as to the !orm it should ta$e The underta$ing to provide more protection than "hat they deemed to %e necessary "as a consideration !or the promise o! re"ard AClass%roo$ <rothers vs Glamorgan Country Council *1I291+ A C 271B *vii+ Consideration must not %e unla"!ul, immoral, or opposed to pu%lic policy 1 11 #uit %y a Third -arty to an Agreement There is a %ig di!!erence %et"een a third party to consideration and third party to a contractR "hile the !irst can sue, the second cannot sue Thus a contract %y the purchaser o! a mortgaged property to pay o!! the mortgage cannot %e en!orced %y the mortgagee "ho "as not a party to the contract %et"een vendor and vendee ?o"ever there are e(ceptions to the a%ove principle These are3 1 In the case o! a trust, the %ene!iciary can sue en!orcing his right though he "as not a party to the contract %et"een the trustee and the settler In Pha"2a @ohammed Phan 0s ?ussain <egum 571 A 192, "here, the !ather o! the %ridegroom promised to pay through a contract "ith the !ather o! the %ride, an allo"ance to the %ride, i! she married his son, the %ride sued her !ather=in= la" a!ter marriage !or the allo"ance "hich he did not pay as per the contract It "as held %y the -rivy Council that though the %ride "as not a party to the contract %et"een her !ather and !ather in la", she could en!orce her claim in equity 2 In the case o! !amily settlement, i! the terms o! settlement are reduced in "riting, mem%ers o! the !amily "ho "ere not a party to the settlement can *also+ en!orce their claim *#huppu 0s #u%ramanian 55 @ad 258+ 5 In the case o! certain marriage contracts a !emale mem%er can en!orce a provision !or marriage e(pense %ased on a petition made %y the ?indu undivided !amily *#under Fa2a 0s 7a$shmi 58 @ad 788+ 6 &here there is an assignment o! a contract, the assignee can en!orce the contract !or various %ene!its that "ould accrue to him on account o! the assignment APrishanlal #adhu 0s -rimila <ala Easi *1I28+ Cal 1519B 9 In case o! part per!ormance o! a contractual o%ligations or "here there is ac$no"ledgment o! lia%ility on account o! estoppel, a third party can sue !or %ene!its &here !or e(ample A gives > 29111C= to < to %e given to C and < in!orms C that < is holding it on %ehal! o! C, %ut su%sequently re!uses to pay C then C can sue and en!orce his claim

&here a piece o! land "hich is sold to %uyer "ith certain covenants relating to land and the

%uyer is $ept on notice o! the covenants "ith certain duties, there the successors to the seller can en!orce these covenants 1 12 0alidity o! an Agreement "ithout Consideration &e have all along learnt that an agreement "ithout consideration is void )ot only that, even inadequate consideration "ould render the en!orcea%ility o! the contract quite di!!icult as the !ree consent o! the parties "ould %ecome suspect The Act ho"ever contains certain e(ceptions to this important rule These are3 *i+ ;n account o! natural love and a!!ection3A "ritten and a registered agreement made %et"een parties out o! natural love and a!!ection does not require consideration #uch an agreement is en!orcea%le even "ithout consideration It is important that parties should %e near relation li$e hus%and and "i!e to get this e(emption *Fa2lu$hee Eevee 0s <hootnath+ *ii+ Compensation paid !or past voluntary services3 A promise to compensate "holly or in part !or past voluntary services rendered %y someone to promisor does not require consideration !or %eing en!orced ?o"ever the past services must have %een rendered voluntarily to the promisor 4urther the promisor must have %een in e(istence at that time and he must have intended to compensate *iii+ -romise to pay de%ts %arred %y limitation3 &here there is a promise in "riting to pay a de%t, "hich "as %arred %y limitation, is valid "ithout consideration *iv+ Creation o! Agency3 In term o! section 189 o! the Act, no consideration is necessary to create an agency *v+ In case o! completed gi!ts, no consideration is necessary This is clear !rom the /(planation *1+ to section 29 o! the Act "hich provides that ,nothing in this #ection shall a!!ect the validity as %et"een donor and donee o! any gi!t actually made Fevie" o! !undamentals K K Consideration= The promiseCper!ormance that parties e(change "ith each other Fules o! valid consideration3 @ove at the desire o! promisor %y promisee and any other

person It is must !or every contract though not necessarily %e adequate %ut must %e real and not illusory and should %e o! some value in terms o! money Contract "ithout consideration is void su%2ect to certain e(ceptions= agreement on account o! natural love and a!!ection, promise to compensate !or voluntary services and promise to pay a time W%arred de%t, gi!t actually made, and in agency

A C;)TFACT 7earning o%2ectives A!ter studying this unit, you "ould %e a%le to = K K K )ote the various ingredients o! incapacity to contract <e clear a%out the legal consequence o! contracting "ith a minor <e !amiliar "ith the concept o! Vconsensus ad idemV i e parties agreeing upon the same

thing in the same sense K Try to grasp the characteristics o! di!!erent elements vitiating !ree consent and particularly to distinguish amongst !raud, misrepresentation and mista$e K K Hnderstand the circumstances "hen o%2ect and consideration %ecome unla"!ul <e a"are o! the agreements opposed to pu%lic policy

In the previous units "e discussed all aspects o! o!!er, acceptance, revocation, and consideration In this unit "e "ill discuss other elements, "hich "ould constitute a contract &e have earlier seen that in terms o! #ection 11 o! the Indian Contract Act,1872 a legally en!orcea%le agreement should %e made "ith the !ree consent o! the parties "ho are competent to contract !or a la"!ul consideration "ith a la"!ul o%2ect 4urther the agreement should not have %een e(pressly declared as void %y la" These elements "ould %e e(amined hereunder 1 15 4ree Consent In terms o! section 15 o! the Act, t"o or more persons are said to have consented "hen they agree upon the same thing in the same manner This is re!erred to as identity o! minds or ,consensus= ad=idem. A%sence o! identity o! minds "ould arise "hen there is an error on the part o! the parties regarding *a+ nature o! transaction or *%+ person dealt "ith or *c+ su%2ect matter o! agreement In such cases there "ould %e no consent ?o"ever cases o! !undamental errors have to %e distinguished !rom cases o! mutual mista$es /(ample3 &here the persons re!er to a ship o! a name in the contract %ut each o! them had a di!!erent ship in mind though o! same name, there is no identity o! minds and hence there is no consent That there is no contract in the a%sence o! consent "as considered in the case o! Cundy 0s 7indsay In this case one <len$arn in placing order !or goods "ith Cundy closely imitated the address and signature o! another "ell=$no"n !irm $no"n as <len$iron 8 Co Cundy sent the goods to <len$arn %ut thin$ing that the order "as !rom <len$iron 8 Co <len$arn in turn sold the goods to 7indsay Cundy discovered his mista$e, %rought a suit against 7indsay !or recovery o! goods It "as held %y the ?ouse o! 7ords that Cundy "as under mista$e as he thought he "as dealing "ith <len$iron 8 Co, "hile he "as in !act dealing "ith <len$ran ?ence there "as no

contract at all The agreement "as declared as void in the a%sence o! identity o! minds or proper consent The suit "as decreed against 7indsay The consent re!erred a%ove must %e ,!ree consent. as "ell Consent is !ree "hen it is not caused %y coercion, undue in!luence, !raud, misrepresentation or mista$e *#ection 16+ &hen the consent is caused %y mista$e, the agreement is void, %ut "hen caused %y other !actors it is voida%le )o" let us discuss each o! these !actors, "hich should not in!luence consent *a+ Coercion*#ection 19+3 ,Coercion. is the committing, or threatening to commit any act !or%idden %y the Indian -enal Code 18J1, or the unla"!ul detaining, or threatening to detain any property, to the pre2udice o! any person "hatever, "ith the intention o! causing any person to enter into an agreement 4or e(ample, D says to Q I shall not return the documents o! title relating to your "i!es property, unless you agree to sell your house to me !or > 9111 Q says, ,All right, I shall sell my house to you !or > 9111R do not detain my "i!es documents o! title., D has employed coercionR he cannot there!ore en!orce the contract <ut Q can en!orce the contract i! he !inds the contract to his %ene!it An agreement induced %y coercion is voida%le and not void That means it can %e en!orced %y the party coerced, %ut not %y the party using coercion It is immaterial "hether the Indian -enal Code,18J1 is or is not in !orce at the place "here the coercion is employed &here hus%and o%tained a release deed !rom his "i!e and son under a threat o! committing suicide, the transaction "as set aside on the ground o! coercion, suicide %eing !or%idden %y the Indian -enal Code *Amira2u 0s #eshamma *1I76+ 61 @ad, 55+ A person to "hom money has %een paid or anything delivered under coercion, must repay or return it *%+ Hndue in!luence *#ection 1J+3 A contract is said to %e induced %y ,undue in!luence. "here the relations su%sisting %et"een the parties are such that one o! the parties is in a position to dominate the "ill o! the other and uses that position to o%tain an un!air advantage o! the other A person is deemed to %e in a position to dominate the "ill o! the other, "hen he holds authority, real or apparent over the other, or "hen he stands in a !iduciary relation to other The essential ingredients o! undue in!luence are3 ;ne o! the parties dominates the "ill o! the other and he has real or apparent authority over the otherR he is in a position to dominate the "ill o! the other and the dominating party ta$es advantage o! the relation 4ollo"ing are the instances "here one person can %e treated as in a position to dominate the "ill o! the other *i+ A solicitor can dominate the "ill o! the client *ii+ "ill o! his patient having protracted illness, and A doctor can dominate the

*iii+ A trustee can dominate the "ill o! the %ene!iciary The %urden o! proo! *in situations li$e the a%ove+ that there is no undue in!luence in an agreement "ould %e on the person "ho is in a position to dominate the "ill o! the other 4or instance the !ather should prove that he had not unduly in!luenced his son in the case o! any given agreement The stronger party must act in good !aith and see that the "ea$er party gets independent advice

The !ollo"ing t"o decisions "ould ena%le us to understand the la" *a+ *%+ Allaha%ad ?igh Court set aside a gi!t o! the "hole o! the property %y an elderly ?indu to his #imilarly, -rivy Council set aside a deed o! gi!t e(ecuted %y an old illiterate @uslim lady in spiritual advisor !avour o! the manager o! her estate @oney lending operations and undue in!luence3 It is o!ten seen that on account o! undue in!luence %orro"ers end up paying very high rate o! interest to the lenders This is %ecause lenders are in a position to dominate the "ill o! the %orro"ers #uch high rate o! interest "ill %e treated as unconsciona%le "here parties are not on same !ooting Ei!!erence %et"een Coercion and Hndue In!luence3 ?aving discussed in detail the concepts o! coercion and undue in!luence, let us understand the di!!erence %et"een the t"o3= *i+ )ature o! action3 Coercion involves physical !orce and sometimes only threat Hndue in!luence involves only moral pressure *ii+ Involvement o! criminal action3 Coercion involves committing or threatening to commit any act prohi%ited or !or%idden %y la", or detention or threatening to detain a person or property In undue in!luence there is no such illegal act involved *iii+ Felation ship %et"een parties3 In coercion there need not %e any relationship %et"een partiesR "hereas in undue in!luence, there must %e some $ind o! relationship %et"een parties, "hich ena%les to e(ercise undue in!luence over the other *iv+ /(ercise %y "hom3 Coercion need not proceed !rom the promisor It also need not %e directed against the promisee Hndue in!luence is al"ays e(ercised %y one on the other, %oth o! "hom are parties to a contract *v+ /n!orcea%ility3 &here there is coercion, the contract is voida%le &here there is undue in!luence the contract is voida%le or court may set it aside or en!orce it in a modi!ied !orm *vi+ -osition o! %ene!its received3 In case o! coercion, "here the contract is rescinded %y the aggrieved party any %ene!it received has to %e restored %ac$ In the case o! undue in!luence, the

court has discretion to pass orders !or return o! any such %ene!it or not to give any such directions *c+ 4raud*#ection 17+3 4raud means and includes any o! the !ollo"ing act committed %y a party to a contract or "ith his connivance or %y his agent "ith intent to deceive another party thereto or his agent or to induce him to enter into the contract *i+ the suggestion, as to a !act, o! that "hich is not true %y one "ho does not %elieve it %e trueR the active concealment o! a !act %y one, having $no"ledge or %elie! o! the !actR a promise made "ithout any intention o! per!orming itR any other act !itted to deceiveR and any such act or omission as to la" specially declared to %e !raudulent It is important to note that !raud that results in a contract alone is covered %y section17 o! the Act I! there is a !raud %ut it does not result in a contract, it "ould not !all "ithin the purvie" o! the Act The !ollo"ing can %e ta$en as illustration o! !raud3 K A director o! a company issues prospectus containing misstatement $no"ing !ully "ell a%out such mis=statement It "as held any person "ho had purchased shares on the !aith o! such misstatement can repudiate the contract on the ground o! !raud K < discovered an ore mine in the /state o! A ?e conceals the mine and the in!ormation a%out the mine A in ignorance agrees to sell the estate to < at a price that is grossly undervalued The contract "ould %e voida%le o! the option o! A on the ground o! !raud K <uying goods "ith the intention o! not paying the price is an act o! !raud K It "ill %e interesting to $no" that not only Contract Act, %ut also other Acts have speci!ically declared certain acts and omission as !raud A seller o! a property should disclose any material de!ect in the property Concealing the in!ormation "ould %e an act o! !raud Any other act committed to deceive is !raud @ere silence "ould amount to !raud under certain circumstances Although a mere silence as to !acts "hich is li$ely to a!!ect the "illingness o! a person to enter into a contract is no !raud, "here there is a duty to spea$ or "here his silence is equivalent to speech, then such silence amounts to !raud This "ould %e clearly seen !rom the e(planation to #ection 17 o! the Indian Contract Act,1872 This situation o!ten arises in Insurance contracts In the case o! !ire insurance contract %et"een person standing in !iduciary relationship, non= disclosure o! certain in!ormation "ould amount to !raud as there is a duty to ma$e special disclosure These are also $no" as u%errimae !idei contract In the case o! marine insurance policy contract, "here a charterer is shipping goods o! high value %ut !ails to disclose such high value o! the goods to the under"riter, there is !raud #imilarly the

insurer is not %ound %y the policy issued %y him "here he is misin!ormed a%out insurance policy previously ta$en %y the insured *d+ @isrepresentation A#ection 18B3 ,@isrepresentation does not involve deception %ut is only an assertion o! something %y a person "hich is not true, though he %elieves it to %e true misrepresentation could arise %ecause o! innocence o! the person ma$ing it or %ecause he lac$s su!!icient or reasona%le ground to ma$e it A contract "hich is hit %y misrepresentation can %e avoided %y the person "ho has %een misled 4or e(ample, A ma$es the statement on an in!ormation derived, not directly !rom C %ut !rom @ < applies !or shares on the !aith o! the statement "hich turns out to %e !alse The statement amounts to misrepresentation, %ecause the in!ormation received second=hand did not "arrant A to ma$e the positive statement to < A#ection 18 *1+B )o" let us analyse the di!!erence %et"een !raud and misrepresentation *i+ /(tent o! truth varies3 ;ne o! the important di!!erence %et"een !raud and misrepresentation is that in case o! !raud the person ma$ing the representation $no"s it !ully "ell that his statement is untrue8 !alse In case o! misrepresentation, the person ma$ing the statement %elieves it to %e true "hich might later turn out to %e untrue In spite o! this di!!erence, the end result is that the other party is misled *ii+ Fight o! the person concerned "ho su!!ers3 4raud not only ena%les the party to avoid the contract %ut is also entitled to %ring action @isrepresentation merely provides a ground !or avoiding the contract and not !or %ringing an action in court *iii+ Action against the person ma$ing the statement3 In order to sustain an action !or deceit, there must %e proo! o! !raud As earlier discussed !raud can %e proved only %y sho"ing that a !alse statement "as made $no"ing it to %e !alse or "ithout %elieving it to %e true or rec$lessly "ithout any care !or truth ;ne is !or action against deceit and the other is action !or recession o! the contract In the case o! mis=representation the person may %e !ree !rom %lame %ecause o! his innocence %ut still the contract cannot stand *iv+ Ee!ences availa%le to persons3 In case o! misrepresentation, the !act that plainti!! had means o! discovering the truth %y e(ercising ordinary diligence can %e a good de!ence against the repudiation o! the contract, "hereas a de!ence cannot %e set up in case o! !raud other than !raudulent silence The tenuous di!!erence %et"een !raud and misrepresentation "as %eauti!ully %rought out in the !amous case o! Eerry vs -ee$ In the said case the plainti!! %rought an action o! deceit against the promoters o! a tram"ay company According to him, the promoters in the prospectus had not mentioned that they had not o%tained

the permission o! the %oard o! trade "hich "as necessary !or using mechanical po"er Ato run a trainB and here this "as deceit The plea o! the de!endant "as that it never occurred to them to say anything a%out the consent o! the <oard o! trade %ecause they had a right under the Act o! parliament !or using steamR they had presumed, they "ould also get the consent o! <oard o! trade The Court veri!ied the position and concluded that there "as no deceit and the plea !or action !or deceit "as dismissed 1 16 General Consequences o! Coercion, 4raud, @isrepresentation /tcR *#ection 1I+ &hat is the e!!ect and "hat the consequences o! a contract hit %y coercion, undue in!luence, !raud or misrepresentations, are dealt %y #ection 1I o! the Act It is seen that in all these cases though the agreement amounts to a contract, it is voida%le The in2ured party might insist on %eing placed in the same position in "hich he might have %een had the vitiating circumstances not %een present 4or e(ample A !raudulently in!orms < that his estate is !ree !rom encum%rance, there!ore < %uys the estate <ut the estate is su%2ect to mortgage < may avoid the contract or insist on the de%t %eing redeemed and mortgage %eing released <ut, "here it is possi%le to discover the truth "ith ordinary diligence, and though the consent might have %een o%tained %y misrepresentation or silence, then the contract cannot %e avoided 4or instance "here A misrepresents to < that his sugar !actory can produce 911 tons o! sugar and "hereas it actually produced 511 tones o! sugar and i! < had the opportunity to e(amine the accounts through "hich he could have !ound out the truth and i! in spite o! that he had entered into a contract, he can not repudiate it &here a party to contract perpetrates !raud or misrepresentation, %ut the other party is not misled %y such !raud or misrepresentation, then the contract cannot %e avoided %y the latter &here !or instance, the seller o! speci!ic goods deli%erately conceals a !ault in order that the %uyer may not discover it even i! he inspects the goods, %ut the %uyer in !act does not ma$e any inspection at all, the %uyer cannot avoid the contract as he is not deceived %y the seller &here a contract is voida%le and the party entitled to avoid it decides to do so %y rescinding it, he must restore any %ene!it "hich he might have received !rom the other party ?e cannot avoid the contract and at the same time en2oy the %ene!it under the rescindedCavoided contract ?o"ever "here a contract is sought to %e rescinded on the ground o! undue in!luence the court may set aside the contract partially or !ully &here the party see$ing to rescind the contract had received only %ene!it, the contract "ill %e set aside %y the court upon such terms and conditions deemed !it

/(ample3 A student "as induced %y his teacher to sell his %rand ne" car to the latter at less than the purchase price to secure more mar$s in the e(amination Accordingly the car "as sold ?o"ever, the !ather o! the student persuaded him to sue his teacher #tate on "hat ground the student can sue the teacher' Qes, the student can sue his teacher on the ground o! undue in!luence under the provision o! Indian Contract Act, 1872 A contract %rought a%out as a result o! coercion, undue in!luence, !raud or misrepresentation "ould %e voida%le at the option o! the person "hose consent "as so caused 1 19 @ista$e The !i!th signi!icant element that vitiates consent is @ista$e &here parties to an agreement are under a mista$e as to a matter o! !act "hich is essential to the agreement, then the agreement is void As "e all $no" a void agreement cannot %e en!orced at all /(ample3 A agrees to sell certain cargo "hich is supposed to %e on its "ay in a ship !rom 7ondon to <om%ay <ut in !act, 2ust %e!ore the %argain "as struc$, the ship carrying the cargo "as cast a"ay %ecause o! storm and rain and the goods "ere lost )either o! the parties "as a"are o! it The agreement is void ACouturier vs ?asite 9 ? 7 C J75B @ista$e must %e a matter o! !act and not o! la" &here A and < enter into contract %elieving "rongly that a particular de%t is not %arred %y la" o! limitation, then the contract is valid %ecause there is no mista$e o! !act %ut o! la" only ?o"ever a question on !oreign la" "ould %ecome a matter o! question o! !act #imilarly the e(istence o! a particular private right though depends upon rules o! la", is only a matter o! !act 4or instance "here a man promises to %uy a property "hich already %elongs to him "ithout him %eing a"are o! it, then such a promise is not %inding on him ?o"ever a !amily arrangements or a compromise o! dou%t!ul rights cannot %e avoided on the ground o! mista$e o! la" Qet another issue to remem%er in mista$e is that it must %e o! an essential !act &hether the !act is essential or not "ould again depend on ho" a reasona%le man "ould regard it under given circumstances A mere "rong opinion as to the value is not an essential !act &hile deciding "hether a contract is hit %y mista$e or not it must %e remem%ered that @ista$e is not unilateral <oth the parties should %e under mista$e A unilateral mista$e "ould not render the contract invalid 4or e(ample "here A agrees to purchase !rom < 18 caret gold thin$ing it to %e pure gold %ut < "as not instrumental !or creating such an impression then contract %et"een A and < should %e treated as valid 4rom the !oregoing it is clear that3= a @ista$e should %e a matter o! !act

% c d e other

@ista$e should not %e a matter o! la" @ista$e should %e a matter o! essential !act @ista$e should not %e unilateral %ut o! %oth the parties and @ista$e renders agreement void and neither party can en!orce the contract against each

Fevie" o! !undamentals K &hen t"o or more persons agree upon the same thing in the same sense,they are said to have consent Consent is said to %e !ree "hen it has not %een o%tained %y coercion,undue in!luence,!raud,misrepresentation or mista$e K Coercion WAn act or threat o! a person "ith an intention o! causing any person to enter into an agreement %y W*i+ committing C threatening to commit any act !or%idden %y I-C, or *ii+ unla"!ully detaining or threatening to detain any property o! another #uch a contract is voida%le K Hndue in!luence WIt is e(erted %y a dominant party on a "ea$er one to get an un!air advantage in a contract In the !ollo"ing circumstances, the party stand in a dominant position= &here party holds realCapparent authority over the others, or party stands in a !iduciary relationship to the other,or "here the party ma$e a contract "ith a party in mental or %odily distress A contract caused %y undue in!luence is voida%le /ven court is also empo"ered to set aside such contract a%solutely or conditionally K 4raud=Intentional misrepresentation or concealment o! material !acts o! a contract "ith an intention to deceive and induce the other party to enter into an agreement #ilence merely not amount to !raud, e(cept=its duty to spea$,or silence is equivalent to speech, or stating hal! truth K @isrepresentation= An innocentC unintentional !alse statementC assertion o! !act in the ma$ing o! an agreement Femedies in the a%ove cases are same, e(cept the right to claim damages in case o! !raud K @ista$e= An erroneous %elie! a%out something It may %e either o! !act or o! la" @ista$e renders the contract void Hnilateral mista$e made %y one o! the parties It is a valid contract, unless it is caused %y misrepresentation or !raud /ven unilateral mista$es as to !act renders the contract void 1 1J Capacity to Contract The ne(t issue !or consideration is, "ho is competent to contract' /very person "ho *a+ has attained the age o! ma2ority *%+ is o! sound mind and *c+ is not other"ise disquali!ied !rom contracting, is competent to contract )o" let us discuss each one o! these requirements

*a+ Age o! ma2ority3 In terms o! Indian @a2ority Act 1879, every domiciled Indian attains ma2ority on the completion o! 18 years o! age ?o"ever "here a guardian is appointed %y a court to protect the property o! a minor and the court ta$es charge o! the property %e!ore the person attains 18 years, then he or she "ould attain ma2ority on completion o! 21 years )o" let us analy:e the position "ith regard to the position o! minors agreement = *i+ An agreement entered into %y a minor is altogether void3 An agreement entered into %y a minor is void against the minor and the question o! its en!orcea%ility does not arise The -rivy Council in @ohiri <i%ee vs Eharmodos Ghose A1I15B 7F 51, Cl 95I9, decided that an agreement "here minor is a party is altogether void In this case a minor e(ecuted a mortgage in !avour o! the hus%and o! @ohiri <i%ee The question !or consideration is "hether the mortgage is valid Interpreting #ections 11 811 o! the Indian Contract Act, 1872 -rivy Council held that unless all the parties to an agreement "ere competent to contract, the agreement "ould %e void The main reason !or such a vie" is that a minor is incapa%le o! per!orming his part o! the contract imposing a legal o%ligation *ii+ @inor can %e a %ene!iciary3 Though a minor is not competent to contract, nothing in the Contract Act prevents him !rom ma$ing the other party %ound to the minor Thus, a promissory note duly e(ecuted in !avour o! a minor is not void and can %e sued upon %y him, %ecause he though incompetent to contract, may yet accept a %ene!it A minor cannot %ecome partner in a partnership !irm ?o"ever, he may "ith the consent o! all the partners, %e admitted to the %ene!its o! partnership *#ection 51 o! the Indian -artnership Act,1I52+ *iii+ @inor can al"ays plead minority3 Any money advanced to a minor cannot %e recovered as he can plead minority and that the contract is void /ven i! there had %een !alse representation at the time o! %orro"ing that he "as a ma2or, the amount lent to him cannot %e recovered This position "as upheld %y -rivy Council in @ohiri <i%ees case "here money "as lent to a minor "ith !ull $no"ledge o! the %orro"ers in!ancy and even request !or payment o! compensation under sections 58 8 61 o! the #peci!ic Felie! Act,1IJ5 "as re!used -rivy Council concurred "ith the vie"s o! Calcutta ?igh Court that no discretion could %e used even under that Act to grant any $ind o! relie! to the lender o! money &hen the mortgage documents had to %e cancelled at the instance o! minor "ho mortgaged the property !raudulently, Courts have ordered compensation under #peci!ic Felie! Act,1IJ5 to the other party to the instrument AEattaram vs 0inaya$ *1I15+ 28 %om 181 , @anmatha Pumar vs /(change 7oan Co 61 C & e ) 119B I! a minor had o%tained payment !raudulently %y concealing his age, he may %e compelled to

restore the payment %ut he cannot %e compelled !or an identical sum as it "ould amount to en!orcing void contract *iv+ Fati!ication o! agreement not permitted3 A minor on his attaining ma2ority cannot validate any agreement "hich "as entered into "hen he "as minor, as the agreement "as void #imilarly a minor cannot sign !resh promissory notes on his attaining ma2ority in lieu o! promissory notes e(ecuted !or a loan transaction "hen he "as minor, or a !resh agreement "ithout consideration *v+ 7ia%ility !or necessaries3 A person "ho supplied necessaries o! li!e to a minor or his !amily, is entitled to %e reim%ursed !rom the properties o! a minor, not on the %asis o! any contract %ut on the %asis o! an o%ligation resem%ling a contract )ecessaries o! li!e not only include !ood and clothing %ut also education and instruction They also include goods and services *vi+ Contract %y guardian are valid3 Though an agreement "ith minor is void, valid contract can %e entered into "ith the guardian on %ehal! o! the minor The guardian must %e competent to ma$e the contract and the contract should %e !or the %ene!it o! the minor 4or instance a guardian can ma$e an en!orcea%le marriage contract on %ehal! o! the minor #imilarly !ather o! %ride can enter the contract "ith the !ather o! %ridegroom !or payment o! certain allo"ance to the %ride <ut not all contracts %y guardian are valid A guardian cannot %ind a minor in a contract to purchase immova%le properties A@ir #ar"ar2an vs 4a$haruddan *1I12+ 5I Cal 252B ?o"ever, a court appointed guardian can %ind a minor is respect o! certain sale o! property ordered %y the court Fevie" o! !undamentals K contract A person is competent to contract , "here he is W *i+ @a2or *ii+ #ound mind*iii+ not disquali!ied %y any other la" o! the land K K K K K *%+ )ature o! minors agreement= @inors agreement is a%solutely void !rom very %eginning, so @inor can %e a %ene!iciary @inor cannot rati!y his agreement even a!ter attaining the age o! ma2ority @inor can al"ays plead his minority, as no rule o! estoppel is applica%le to minor @inor, is not personally lia%le !or the necessaries supplied to himC or his legal dependants #ound mind3 The ne(t important requirement %y "ay o! capacity to contract is ,sound it has no en!orcea%ility A @ohiri <i%ee v Eharmodas GhoseB Capacity to contract =7egal capacity o! parties to enter into a

mind. A person "ill %e considered to %e o! sound mind i! he at the time o! entering into a contract is capa%le o! understanding it and !orming a rational 2udgment as to its e!!ect upon his interest A person "ho is o! unsound mind %ut occasionally o! sound mind can enter into a contact

"hen he is in

sound mind though !or temporary periods 4or e(ample a person "ho is in

lunatic asylum during intervals o! sound mind can enter into contracts #imilarly a person "ho is generally o! sound mind, %ut occasionally o! unsound mind cannot enter into a contract "hen he is o! unsound mind 4rom the a%ove it clear that the period o! lucidity "ould %e crucial as much as the periods o! lunacy <ut the %urden o! proo! o! unsound mind is on the person "ho challenges the validity o! the contract A lunatic "hose estate is managed %y a committee or manager is not capa%le o! entering into a contract even during the periods o! lucidity in vie" o! special provisions o! 7unacy Act The %asic test !or lunacy or lucidity is to see "hether the person is a%le to understand the implications o! a contract "hich he enters into on his interest Idiots, lunatics and drun$en persons are e(amples o! persons o! unsound mind )ecessaries o! li!e supplied to a person o! unsound mind3 In term o! section J8 o! the Indian Contract Act,1872 i! a person incapa%le o! entering into a contract is supplied %y another person "ith necessaries o! li!e, the person "ho has !urnished such supplies is entitled to %e reim%ursed !rom the property o! such a person *c+ Contract %y disquali!ied persons3 Apart !rom minors and persons o! unsound mind, these are the others "ho are not capa%le o! entering into contract either "holly or partially Contract %y such persons are void An alien enemy, during "ar cannot enter into a contract "ith an Indian su%2ect, unless he is permitted %y central government to do so he cannot sue in Indian Courts This disa%ility to an alien enemy arises on account o! pu%lic policy #tatutory corporations or @unicipal %odies cannot enter into contracts on matters "hich are %eyond their statutory po"ers or ultra vires the memorandum or articles through "hich they are created An Advocate in India can enter into contracts "ith his clients !or recovery o! !ees or payment o! !ees in certain manner unli$e his counterpart in H P "here %arristers are prohi%ited to enter into contracts !or recovery o! !ees !rom their clients A)ichal chand vs Eila"ar Phan 99 All 7I1B <e!ore entering into contract "ith the government, certain procedure and !ormalities are required to %e complied "ith ;n de!ault o! it, such contract "ill %e void A<i$hra2 vs Hnion o! India *1IJ2+ 2 # C F 881 Paramshi vs #tate o! <om%ay AIF *1IJ6+ # C 1716B #overeign states, Am%assadors and Eiplomatic Consuls en2oy certain privileges "ith the result that they cannot %e proceeded against in Indian Courts ?o"ever, they can, at their "ill enter into contracts "hich may %e en!orcea%le in India

Fevie" o! !undamentals K -erson is said to %e o! sound mind !or the purpose o! ma$ing a contract, "here he is= *a+ capa%le o! understanding the nature o! the contract, and *%+ capa%le o! ma$ing a rational 2udgement as to e!!ect upon its interests K K K Insanity is required only at the time o! ma$ing a contract K A person usually o! unsound mind, %ut occasionally o! sound mind= can ma$e contract "hen he is o! sound mind A person usually o! sound mind, %ut occasionally o! unsound mind= cannot ma$e contract The agreements made %y a person o! unsound mind are a%solutely void K Certain persons "hen he is o! unsound mind "ho are disquali!ied !rom contracting %y other la"s are= Alien enemy, 4oreign diplomats 8 Consuls, Arti!icial persons, Insolvents, and Convicts 1 17 7a"!ul ;%2ect and Consideration )o" let us discuss t"o other important ingredients o! a valid contract namely la"!ul o%2ect and la"!ul consideration #pea$ing generally all persons en2oy !reedom !or entering into contracts o! their choice <ut this contractual !reedom or their right to enter into agreements is not a%solute There is a limitation on such contractual !reedom as they are %ound %y certain general provisions o! la" The a%ove o%servation can %e illustrated "ith the !ollo"ing e(ample3 suppose A agrees to pay > 111C= to < on < stealing Cs purse, then no Court can compel A to pay < even i! he manages to steal Cs purse %ecause it "ould amount to encouraging these things &hile on the su%2ect o! o%2ect and consideration it must %e said that in practice it is di!!icult to distinguish %et"een o%2ect and consideration especially "hen consideration consists o! a promise to do or, not to do something #ometimes %oth o%2ect and consideration are seen !or evaluation 4or e(ample, "here A agrees to sell goods to < "ho is insolvent and < assigns the %ene!it o! the contract !or > 111C= "ith a vie" to de!rauding creditors, the consideration !or the assignment vi: > 111C= is la"!ul %ut the o%2ect namely de!rauding creditors is unla"!ul as it is to de!eat the provision o! insolvency la" Although o%2ect and consideration are sometimes intert"ined "e have to, "here ever it is possi%le, separate them and identi!y "hether they are la"!ul 1 18 Hnla"!ul ;%2ect In terms o! section 25 o! the Act consideration or o%2ect is unla"!ul i! it is !or%idden %y la"R or it "ould i! permitted, de!eat the provisions o! any la" or is !raudulent or involves in2ury to the person or property o! another or is immoral or opposed to pu%lic policy /very agreement "here

the o%2ect or consideration is unla"!ul is void Thus section 25 has set out the limits to contractual !reedom 4ollo"ing are e(amples o! agreement "hich are void %ecause the o%2ect is unla"!ul *i+ &here A, < 8 C enter into an agreement to share equally among themselves certain gains acquired %y !raud or loss acquired %y !raud The agreement is void %ecause the o%2ect %eing commission o! !raud, is unla"!ul *ii+ A promises to return the stolen property o! < i! < "ould "ithdra" the criminal case !iled against him, the agreement is void as its o%2ect namely "ithdra"ing the case "ould mean sti!ling prosecution 1 1I Hnla"!ul Consideration )o" let us consider circumstances "hich "ould ma$e consideration and the o%2ect as "ell unla"!ul There are seven such circumstances namely = *i+ Agreement !or%idden %y la"3 Acts !or%idden %y la" means acts that are punisha%le under any #tatute or Fules or Fegulations made under any #tatute 4or instance a plantation company that is commenced, !or gro"ing, !elling and selling tim%er cannot enter into any agreement to gro" and !ell sandal"ood trees as !elling o! sandal"ood is prohi%ited %y la" vi: 4orest Act /(ample3 A license to cut grass is given to D %y 4orest Eepartment under the 4orest Act The license provides !or imposition o! penalty in the events o! D choosing to assign his right ?o"ever, i! D assigns his right, the agreement "ould still %e valid since there is no prohi%ition !or such assignment as the consideration stipulating penalty is only to regulate the matter as a matter o! administrative measure *ii+ Consideration de!eats the provision o! la"3 &here an agreement is entered into "ith the o%2ect o! de!eating any provision o! la" then it is prohi%ited ,7a". here should mean any #tatute, 7a", regulation etc, in !orce This can %e illustrated %y the !ollo"ing= *a+ *%+ &here a de%tor agrees not to plead limitation vis=X=vis his creditor, it is an agreement to An agreement %et"een o"ner o! land "ho has to pay land revenue in arrears and a stranger de!eat 7imitation Act that the stranger "ould purchase his estate !or revenues sa$e and reconveys it to the !ormer on receipt o! purchase money is void, as it "ould de!eat the la" relating to revenue, "hich apparently prohi%its de!aulting o"ners !rom purchasing %ac$ the same estate already sold due to his de!ault *c+ An agreement %y a ?indu to give his son in adoption in consideration o! annual allo"ance to natural parents "ould %e in violation o! ?indu 7a" and hence is unla"!ul

*d+ 7a"

Any agreement %y a @uslim "ith the "i!e %e!ore their marriage that the "i!e shall %e at

li%erty to live "ith her parents a!ter marriage is void as it "ould de!eat the provisions o! @uslim *iii+ Consideration that "ould de!eat any rule !or the time %eing in !orce3 This is a situation not very di!!erent !rom point *ii+ discussed a%ove The issue covered %y this point can %e e(plained %y !ollo"ing t"o e(amples3 *a+ A "ill must %e proved in order to %e pro%ated %y a court A mere consent o! parties %y "ay o! agreement to e(cept this requirement o! proo! o! genuineness or proper e(ecution o! "ill is not la"!ul and there!ore cannot %e en!orced under C - C *%+ A receiver is a court o!!icer There!ore his remuneration has to %e !i(ed %y the court -arties to certain litigations cannot add or deviate o! the po"er o! the receiver #imilarly they cannot !i( salary o! a receiver "ithout the leave o! the court ho"ever unconditional it may %e #uch an act "ould %e in contravention o! la" *iv+ &here consideration is a !raud3 4ollo"ing are illustrations to prove "here the o%2ect or consideration o! an agreement is unla"!ul on the ground o! !raud = *a+ A is an agent !or Uamindar, the principal ?e agrees !or money to lease o! land !or < !rom his principal the Uamindar The agreement %et"een A and < is void as the consideration is !raudulent *%+ A 8 < are partners in a !irm They agree to de!raud a Government department %y su%mitting a tender in the individual name and not in the !irm name This agreement is void as it is a !raud on the Government department *v+ &here o%2ect or consideration is unla"!ul %ecause it involves or causing in2ury to a person or loss o! property3 The term in2ury means criminal or "rong!ul harm 4ollo"ing are the illustrations "here the o%2ect or consideration is unla"!ul as it involves in2ury either to person or property *a+ *%+ A agrees to %uy a property !rom < although A $no"s < had agreed previously to sell A agrees to print a %oo$ o! < "hich has clearly %een pu%lished %y ,&. This agreement the property to C The intention o! A here is to cause in2ury to the property o! C is void as it is not only in violation o! Copyright Act %ut also "ith the intent to cause in2ury to the property o! another *c+ A %orro"ed money !rom < ?e is una%le to pay either the principal or interest There!ore he agrees to render manual la%our !or certain period !ailing "hich he agrees to pay e(or%itant interest This agreement is void as rendering la%our as consideration amounts to agreeing to %e a slave #lavery is opposed to pu%lic policy as "ell In other "ords consideration involves in2ury

to A

?ence the agreement is void

*vi+ &here consideration is immoral3 4ollo"ing are illustration "here the agreement is void %ecause the o%2ect or consideration is unla"!ul %eing immoral *a+ *%+ &here A agrees to let his house to a prostitute on rent, "here "ith As $no"ledge she &here - had advanced money to E a married "oman to ena%le her to o%tain a divorce carries on her vocation A cannot collect the rent as the agreement is void, the o%2ect %eing void !rom her hus%and ?e also promised to marry her a!ter divorce It "as held that - "as not entitled to recover the amount !rom E as the agreement "as against good morals *vii+ &here consideration is opposed to pu%lic policy3 Agreement, either %ecause o! their o%2ect or consideration %eing opposed to pu%lic policy are void and not en!orcea%le There!ore the meaning o! the e(pression pu%lic policy is very important It can %e interpreted in a narro" sense or in a %road sense I! it is understood in a narro" sense, it "ould cut into rights o! people to enter into even genuine agreements -u%lic policy as a concept is evolved %asically to develop an orderly society and !or good o! the community <ut !raming pu%lic policy itsel! is a di!!icult e(ercise since a too restrictive approach "ould sti!le the rights o! people and a too li%eral approach "ould open the gate !or many illegal transactions There!ore policy on pu%lic policy has to %e developed "ith circumspection -u%lic policy has %een descri%ed as ,an unruly horse, "hich i! not properly %ridled, may carry its rider he $no"s not "here. Time immemorial !ollo"ing activitiesC agreements have %een identi!ied as ,opposed to pu%lic policy. *a+ Trading "ith enemy3 Any trading or %usiness activity "ith a person "ho o"es allegiance to a Government o! a country "ith "hom India is at "ar "ithout any license !rom Government o! India is void This is %ecause such a trade "ould %e against the interest o! Government o! India and people o! India Any agreement made during peace time "ould %e suspended automatically and cannot %e carried on !urther until hostilities come to an end *%+ #ti!ling prosecution3 Any agreement to sti!le or prevent illegally any prosecution is void as it "ould amount to perversion or a%use o! 2ustice The principle is that one should not ma$e a trade o! !elony It must %e understood ho"ever that under the code o! Criminal -rocedure,1I75 many o!!ences are compounda%le There!ore any agreement to"ards compounding o! an o!!ence to avoid prosecution is not void %ut is very much en!orcea%le Thus, "here A agrees to sell certain land to < in consideration o! < a%staining !rom ta$ing any criminal proceeding against A "ith respect to an o!!ence "hich is compounda%le, the agreement is not opposed to pu%lic policy *c+ @aintenance and Champerty3 @aintenance is promotion o! litigation in "hich the litigant has

no interest Champerty is %argain "here%y one party agrees to assist the other in recovering property "ith a vie" to sharing the pro!it o! litigation These agreements !or maintenance and champerty are void in /ngland %ut not in India ?ence these are not opposed to pu%lic policy <ut "here such advances are made %y "ay o! gam%ling in litigation, the agreement to share the su%2ect o! litigation is certainly opposed to pu%lic policy and there!ore is void *d+ Inter!erence "ith course o! la" and 2ustice3 Any agreement "ith the o%2ect o! inducing a 2udicial o!!icer or administrative o!!icer o! the state to act corruptly or not impartially is void #imilarly an agreement to use in!luence in a litigation in a underhand manner is void 4or instance through an agreement A agrees to re"ard < i! he a%stains !rom %eing a "itness in a suit against A is void <ut an agreement to pay !or to a holy man !or prayers !or success o! a suit is valid *e+ *!+ @arriage %ro$erage contract3 An agreement to negotiate a marriage !or re"ard is void #uch Interest against o%ligation3 The !ollo"ing are e(amples o! agreement that are void as they marriage %ro$erage contracts are opposed to pu%lic policy tend to create an interest against o%ligation The o%2ect o! such agreements is opposed to pu%lic policy *1+ *2+ An agreement %y an agent to receive "ithout his principals consent compensation !rom A promise %y a trustee to do something in violation o! his duty is unla"!ul another !or the per!ormance o! his agency is invalid *5+A "ho is the manager o! a !irm, agrees to pass a contract to D i! D pay to A>2111 privatelyR the agreement is void *g+ #ale o! pu%lic o!!ices3 &hile appointing a person to certain important and high pu%lic o!!ice, merit alone should %e the criteria Any attempt to in!luence or any agreement to in!luence anyone in this regard should %e seen as an act opposed to pu%lic policy -u%lic policy also demands that there should %e no money consideration and i! it is there, it could %e opposed to pu%lic policy This is !or the reason presence o! money consideration "ould convert the situation as sale o! pu%lic o!!ice 4ollo"ing are illustrations in this regard *1+ An agreement to pay money to pu%lic servant in order to induce him to retire !rom his o!!ice so that another person may secure the appointment is void *2+ An agreement to procure a pu%lic recognition li$e -adma 0i%hushan !or re"ard is void

*h+ Agreement !or the creation o! monopolies3 Agreements having !or their o%2ect the esta%lishment o! monopolies are opposed to pu%lic policy and there!ore void It is also hit %y

the @FT- Act *i+ Agreement in restraint o! marriage *#ection 2J+3 /very agreement in restraint o! marriage o! any person other than a minor, is void #o i! a person, %eing a ma2or, agrees !or good consideration not to marry, the promise is not %inding *2+ Agreement in restraint o! trade *#ection 27+3 Any agreement through "hich a person is restrained !rom e(ercising a la"!ul pro!ession, trade or %usiness o! any $ind is to that e(tent void The o%2ect o! this la" is to protect trade The restraint, even i! it is partial, "ill ma$e the the agreement void /(ample3 D, a shop $eeper, in a particular locality agrees to pay Q his rival in %usiness certain compensation, i! Q close his %usiness in that locality the agreement is void The principle o! la" ho"ever has a num%er o! e(ceptions "hich are discussed hereunder *i+ "here a person sells his %usiness along "ith the good"ill to another person, agrees not to carry on same line o! %usiness in certain reasona%le local limits, such an agreement is valid *ii+ In terms o! #ection 5J o! Indian -artnership Act,1I52 an agreement through "hich an outgoing partner "ill not carry on the %usiness o! the !irm !or a reasona%le time "ill %e valid, though it is in restraint o! trade *iii+ Again in terms o! #ection 96 o! the -artnership Act,1I52 partners among themselves may agree that upon dissolution o! the !irm some o! them may not carry on the %usiness o! the !irm #uch an agreement is valid *iv+ #ection 99 o! the Indian -artnership Act,1I52 provides that "here a !ull !irm is sold %y partners along "ith good"ill to a %uyer, there can %e an agreement that they "ould not carry on the %usiness o! the dissolved !irm !or certain period and "ithin certain local limits and such an agreement "ill %e valid *v+ An agreement o! service through "hich an employee commits not to compete "ith his employer is not in restraint o! trade < is a Eoctor and he employs A a 2unior Eoctor as his assistant A agrees not to practice as Eoctor during the period o! his employment "ith < as a Eoctor independently #uch an agreement "ill %e valid *vi+ An agreement %et"een manu!acturer and a "holesale merchant that the entire production during a period "ill %e sold %y the manu!acturer to the "holesale merchant is not in restraint o! trade *vii+ An agreement among sellers not to sell a particular product %elo" a particular price is not an agreement in restraint o! trade *$+ Agreement in restraint o! legal proceedings *#ection 28+3 An agreement in restraint o! legal proceedings resulting in restriction o! ones right to en!orce legal rights is void #imilarly any agreement "hich a%ridges the usual period !or commencing the legal proceedings is also void

4urther these agreement are also void in vie" o! section 25 o! the Indian Contract Act,1872 as the o%2ect o! the agreements are to de!eat the provision o! la" )evertheless, a clause in an !ire insurance policy stipulating that i! the claim is made and re2ected and i! no suit is instituted "ithin three months a!ter such a re2ection, all the %ene!its under the policy "ill %e !or!eited, is valid ?o"ever, there are certain e(ceptions to the a%ove rule3 *i+ A contract %y "hich the parties agree that any dispute %et"een them in respect o! any su%2ect shall %e re!erred to ar%itration and that only the amount a"arded in such ar%itration shall %e recovera%le is a valid contract 4or instance, in agreement %et"een the holder o! a !ire insurance policy and the insurance company that no suit shall %e instituted until the question o! the amount o! damage sustained %y the assured has !irst %een ascertained %y a re!erence to an ar%itrator is a per!ectly valid agreement *ii+ #imilarly, a contract %y "hich the parties agree to re!er to ar%itration any question %et"een them "hich has already arisen or "hich may arise in !uture, is validR %ut such a contract must %e in "riting Fevie" o! !undamentals K K K valid K Any agreement "hich is against the interest o! the pu%lic or harm!ul to the society= Is a pu%lic policy 1 21 Agreement /(pressly Eeclared as 0oid &e have already seen that certain agreements are void a% initio under the Contract Act, li$e agreements %y incompetent persons A#ection 11B, agreement "ith unla"!ul o%2ect or consideration A#ection 25B, agreement made under mutual mista$e o! !act A#ection 21B, agreement "ithout consideration A#ection 29B, agreement in restraint o! marriage, trade or legal proceedings etc , as they are opposed to pu%lic policy In addition to the a%ove, there are also other agreements "hich are e(pressly declared as void *a+ &here consideration is unla"!ul in part3 <y virtue o! #ection 26 o! the Indian Contract Act, ,I! any part o! a single consideration !or one or more o%2ects, or any one or any part o! any one o! several considerations !or a single o%2ect is unla"!ul, the agreement is void. This #ection is o%viously a corollary to #ection 25 o! the Act &here the consideration is An agreement "ith unla"!ul o%2ect or consideration is void &here %oth the consideration and o%2ect o! an agreement is partially unla"!ul and it can not I! unla"!ul part can %e severed !rom the other la"!ul part o! an agreement = 7a"!ul part is

%e severed !rom the agreement= &hole agreement is void

unla"!ul, the entire agreement is void as the agreement has to %e loo$ed as a "hole The general principle o! la" is "here the legal part o! an agreement can %e separated !rom the illegal part, then the legal part i! it can %e given e!!ect %y re2ecting the %ad part and retaining the good part, then the good part is given e!!ect <ut "here no such separation is possi%le, the contract is altogether void /(ample3 A has %usiness interest in Indigo, as a manu!acturer ?e also has interest in illegal tra!!ic o! other goods &here A employs < !or a salary o! > 2111C= to act as superintendent o! As entire %usiness, the agreement is void as the o%2ect o! As promise unla"!ul in part *%+ Agreement the meaning o! "hich is uncertain *#ection 2I+3 &here the meaning o! the terms o! an agreement is uncertain or i! it is not capa%le o! %eing understood "ith certainty, then the agreement is void <ut "here the meaning is capa%le o! %eing made certain, then the agreement is valid 4or e(ample "here A enters into an agreement to supply 111 tones o! oil, the agreement is not valid as the meaning o! it is uncertain since "hat type o! oil that is promised to %e supplied is not clear <ut on the other hand i! A is a dealer o! coconut oil only, then the meaning o! the agreement "ould crystalli:e very easily and then the agreement "ould %e valid *c+ &agering agreement3 7et us discuss "agering contract &e shall also distinguish "agering agreements !rom speculative transactions and mere gam%ling &agering agreement is one "hich involves payment o! a sum o! money upon the determination o! an uncertain event The essence o! "agering agreement is "here there are t"o parties, one "ins, the other loses upon an uncertain event ta$ing place in "hich neither o! them has legitimate interest 4or e(ample A agrees to pay > 911C= to < i! it rains and similarly < agrees to pay A i! it does not This is a classic case o! a "agering agreement <ut "here one o! the parties has control over the event, the agreement is valid An agreement %y "ay o! a "ager is void A good de!inition o! "agering agreement "ould %e the one given %y Anson3 ,A promise to give money or moneys "orth upon determination or ascertainment o! an uncertain event. )o" let us see the position "ith regard to transaction o! ,purchase o! lottery tic$et. and ,horse racing. #ection 51 o! the Act provides that an agreement Ato %uy lottery tic$etsB is one %y "ay o! "ager and is void ?o"ever any su%scription or contri%ution or agreement to"ards such su%scription or contri%ution to"ards any plate or pri:e or sum o! money, o! the value o! > 911 or more to %e a"arded to a "inner o! a horse race is not unla"!ul #peculative transactions3 &hile as clearly seen, "agering contracts are void, speculative transactions are valid It is o!ten di!!icult to distinguish %et"een the t"o There are t"o %are elements o! a speculative transaction They are *a+ mutual intention o! parties to acquire or deliver

goods or commodities and *%+ underta$ing o! ris$ arising !rom movement prices In "agering contract, only the element o! ris$ is seen )o" let us ta$e an e(ample3 A enters into a agreement "ith < to %uy 111 %ales o! 2ute at > 191C= per %ale !or !or"ard delivery a!ter si( months This is a proposed transaction o! purchase Y > 191C= per %ale &hat i! the price at the time o! delivery goes up to > 211C= A has the !ollo"ing t"o options3 *i+ *ii+ to ta$e delivery o! 111 %ales at the contracted rate o! > 191C= and sell it to some other %uyer to simply collect the di!!erence o! > 91C= per %ale !rom < #imilarly "hat i! the price at the to ta$e and ma$e a pro!it o! > 91C =per %ale or time o! delivery goes do"n to > 129C= per %ale A has the !ollo"ing t"o options3 *i+ a loss o! > 29 per %aleB or *ii+ to pay the di!!erence o! > 29C= per %ale to < 8 close the contract In the a%ove e(ample i! the original intention o! the parties "as only to settle the di!!erence in price, than it "ould %e a "agering contract "hich "ould %e void Thus %y no" it "ould %e clear that "agering postulates only incurring o! ris$ It is void %ecause it is opposed to pu%lic policy &hile gam%ling and "agering are prohi%ited %y la", speculation is not )o" let us consider other peculiar situations to see "hether they are "agering contracts or speculative contracts or valid contracts Insurance policy3 An insurance policy is a valid contract <ut i! an insurance policy is ta$en %y a person "ho has no insura%le interest, then it is void 4or instance a person "ho has no insura%le interest in a ship, ta$es a policy against it %eing sun$, then the contract is void -romissory notes on a "agering contract3 &hile a "agering contract is void a% initio, it is %ut automatic that a promissory note given out o! a "agering contract is not en!orcea%le %y "ay o! a suit A promissory note o! this character is one "ithout consideration and hence is null and void #uit to recover deposit3 A "inner o! %et cannot recover the amount "hich he has "on even i! the amount is $ept %y "ay o! deposit %y the loser "ith the sta$eholder #uch earmar$ing or identi!ication o! !unds does not enhance the validity o! the contract "hich is void In the a%ove e(ample the loser can recover the amount !rom sta$eholders as long as the amount has not %een made over %y the sta$eholder to the "inner &ager and collateral transactions3 The validity o! a collateral transaction cannot %e challenged %ecause the main contract is a "ager and void 4or instance in a "agering contract, the %ro$er is entitled to collect his %ro$erage #imilarly the principal can recover the pri:e money !rom his agent received %y him on account o! a "agering transactions

delivery o! 111 %ales at the contracted rate o! > 191C= Aand perhaps sell it to some %uyer and incur

The acid test o! validly o! a collateral transaction is "hether the main transaction is illegal or legal %ut void I! the main transaction is illegal, the collateral transaction cannot %e valid 4or e(ample security given !or regular payment o! the rent o! a house let out !or the purpose o! gam%ling cannot %e recoveredR the recovery o! security %eing tainted "ith the illegality o! original transaction cannot %e en!orced A promise made %y the loser o! a "ager to pay the amount lost in consideration o! the "inners !or%earance to sue him as de!aulter can %e en!orced as a !resh contract, separate and distinct !rom original "agering contract though collateral to it Fevie" o! !undamentals K An agreement not en!orcea%le %y la" is void In the pu%lic interest, some o! the agreements have %een e(pressely declared to %e void under the Act K Anyagreementinrestrainto!marriageo!aperson,otherthanminorisvoid K /very agreement %y "hich any person is restrained !rom e(ercising a la"!ul pro!ession, trade or %usiness o! any $ind is void K &agering agreements have %een declared to %e void ?o"ever, an agreement to su%scri%e to"ards and plate, pri:e or a sum o! money o! > 911 Cmore to %e a"arded to the "inner o! any horse race, is not unla"!ul Contract o! insurance is not a "ager, it !alls under the category o! contingent contract ;4 C;)TFACT 7earning o%2ectives A!ter studying this unit, you "ould %e a%le to = K K Hnderstand ho" o%ligations under a contract must %e carried out %y the parties <e !amiliar "ith the various modes o! per!ormance

K <e clear a%out the consequence o! re!usal o! per!ormance or re!usal to accept per!ormance, %y either o! the parties K Hnderstand rights o! 2oint promisees, lia%ilities o! 2oint promisors, and rules regarding appropriation o! payments A contract %eing an agreement en!orcea%le %y la", creates a legal o%ligation, "hich su%sists until discharged -er!ormance o! the promise or promises remaining to %e per!ormed is the principal and most usual mode o! discharge This unit e(plains, "ho must per!orm his o%ligationR "hat should %e the mode o! per!ormanceR and "hat shall %e the consequences o! non per!ormance <asic tenet o! per!ormance3 In a contract "here there are t"o parties, each one has to per!orm his part and demands the other to per!orm This o%ligation is the primary tenet The parties "ould %e

treated as having %een a%solved only under the provisions o! any la" or %y the conduct o! the other party Hntil such time the per!ormance is neither e(cused nor dispensed "ith )ot only the promisor has a primary duty to per!orm, even the representative in the event o! death o! a promisor, is %ound %y the promise to per!orm, unless a contrary intention appears !rom the contract A#ection 57B 1 21 <y &hom a Contract may %e -er!ormed The promise under a contract can %e per!ormed %y any one o! the !ollo"ing3 *i+ -romisor himsel!3 Invaria%ly the promise has to %e per!ormed %y the promisor "here the contracts are entered into !or per!ormance o! personal s$ills, or diligence or personal con!idence, it %ecomes a%solutely necessary that the promisor per!orms it himsel! *ii+ Agent3&here personal consideration is not the !oundation o! a contract, the promisor or his representative can employ a competent person to per!orm it *iii+ Fepresentatives3 Generally upon the death o! promisor, the legal representatives o! the deceased are %ound %y the promise unless it is a promise !or per!ormance involving personal s$ill or a%ility o! the promisor ?o"ever the lia%ility o! the legal representative is limited to the value o! property inherited %y them !rom the promisor *iv+ Third -erson3 The question here is "hether a total stranger to a contract "ho is identi!ied as a third person can per!orm a promise &here a promisee accepts per!ormance !rom a third party he cannot a!ter"ards en!orce it against the promisor #uch a per!ormance, "here accepted %y the promisor has the e!!ect o! discharging the promisor though he has neither authori:ed nor rati!ied the act o! the third party *v+ Loint promisors3 &here t"o or more persons 2ointly promise, the promise must %e per!ormed 2ointly unless a contrary intention appears !rom the contract &here one o! the 2oint promisors dies, the legal representative o! the deceased along "ith the other 2oint promisor*s+ is %ound to per!orm the contract &here all the 2oint promisors die, the legal representatives o! all o! them are %ound to per!orm the promise The la" set out a%ove can %e illustrated "ith the !ollo"ing e(amples3 1 A promises to < to pay > 1111C= on delivery o! certain goods A may per!orm this promise either himsel! or causing someone else to pay the money to < I! A dies %e!ore the time appointed !or payment, his representative must pay the money or employ some other person to pay the money I! < dies %e!ore the time appointed !or the delivery o! goods, <s representative shall %e %ound to deliver the goods to A and A is %ound to pay > 1111C= to <s representative

A promises to paint a picture !or < !or a certain price A is %ound to per!orm the promise

himsel! ?e cannot employ some other painter to paint the picture on his %ehal! I! A dies %e!ore painting the picture, the contract cannot %e en!orced either %y As representative or %y < 5 A delivered certain goods to < "ho promise to pay > 9111C= 7ater on < e(presses his ina%ility to clear the dues C, "ho is $no"n to <, pays > 2111C=to A on %ehal! o! < <e!ore ma$ing this payment C did tell < nothing a%out it )o" A can sue < only !or the %alance and not !or the "hole amount

1 22 Eistinction %et"een #uccession and Assignment This discussion arises in the conte(t o! the o%servation that the o%ligations o! a promisor "ould %ind the legal representative also *only+ to the e(tent o! value o! property inherited %y them This %ecame the la" that legal representatives are successors #uccession3 &hen the %ene!its o! a contract are succeeded %y a process o! la", %oth the %urden and the %ene!it "ould some times devolve on the legal heir 4or e(ample < is the son o! A the !ather Hpon As death < "ill inherit all the assets and lia%ilities o! A AThese assets and lia%ilities are also re!erred to as de%ts and estatesB Thus < "ill %e lia%le to all the de%ts o! A , %ut i! the lia%ilities inherited are more than the value o! the estate AassetsB inherited it "ill %e possi%le to pay only to the e(tent o! assets inherited Assignment3 Hnli$e succession, the assignor can assign only the assets to the assignee and not the lia%ilities <ecause "hen a lia%ility is assigned, a third party gets involved in it The de%tor cannot through assignment relieve himsel! o! his lia%ility to creditor ?o"ever there cannot %e any assignment o! %ene!it o! a contract coupled "ith a lia%ility or "hen a personal consideration has entered into ma$ing o! the contract then the contract cannot %e assigned In Ua!!er @ehar Ali vs <udge <udge Lute @ills Company 7td 55Cal , A agreed to sell certain gunny %ags to < "hich "ere to %e delivered in monthly installments !or a period o! J months and the contract contained certain options !or the %uyer as regards quality and pac$ing It "as held that the clause relating to the %uyers option did not preclude the assignment o! the contract 1 25 /!!ects o! Fe!usal to Accept ;!!er o! -er!ormance In any promise, the promisor should act !irst %y o!!ering per!ormance also $no"n as tender In terms o! section 58 o! the Act, "here the promisee has not accepted the o!!er or tender o! per!ormance %y the promisor then the promisor is not responsi%le !or non per!ormance In this

case the promisor does not also lose his rights under a contract The promisor should ho"ever ensure that his tender or o!!er to per!orm his part should satis!y !ollo"ing conditions *i+ *ii+ the o!!er is unconditioned the o!!er is made at a proper time and place under such circumstances that the person to

"hom it is made may have a reasona%le opportunity o! ascertaining that the person %y "hom it is made is a%le and "illing to do "hat he is %ound to do, then and there *iii+ i! the o!!er is an o!!er to deliver any thing to the promisee, then the promisee must have a reasona%le opportunity o! seeing that the thing o!!ered is the thing that the promisor is %ound %y his promise to deliver The a%ove legal principles "ere settled in the !amous /nglish case #tart up vs @acEonald 1865 J @an 8 G 9I5, J11 thus ,The la" considers a party "ho has entered into a contract to deliver goods or pay money to another as having su%stantially per!ormed it, i! he has tendered the goods or money to the party to "hom the delivery or payment "as to %e made, provided only that the tender has %een made under such circumstances that the party to "hom, it has %een made, has had a reasona%le opportunity o! e(amining the goods or the money tendered in order to ascertain that the thing tendered is really "hat that it is purported to %e. An o!!er to any one o! the several 2oint promisees has the same legal consequence as an o!!er to all o! them 1 26 /!!ect o! a Fe!usal o! a -arty to -er!orm -romise &here a party to a contract has re!used to per!orm the promise he has made or had disa%led himsel! !rom per!orming his promise in its entirety, the promisee may put an end to the contract, unless his acquiescence in the continuance o! the contract has %een conveyed either %y "ords or %y deeds AconductB A#ection 5IB Thus !rom the a%ove it could %e seen that the !ollo"ing t"o rights accrue to the aggrieved party= *i+ to terminate the contract and *ii+ to indicate %y "ords or conduct that he is interested in its continuance In case the promisee decides to continue the contract, he "ould not %e entitled to put an end to the contract on this ground immediately In either case, the promisee "ould %e a%le to claim damages that he su!!ers as a result o! the %reach !or it is not incum%ent on the promisee to decide immediately in case o! an anticipated %reach that the contract may %e ended ?e may, ho"ever, choose to do so In that event, the loss *i! any+ su!!ered %y him "ill have to %e made good %y the promisor ;n the other hand, i! he indicates that he is interested in the per!ormance o! the

contract, then he "ould %e entitled to claim damages "hich accrue on the date the contract is due to %e per!ormed It "ould, there!ore, %e clear that the rights that "e have 2ust stated a%ove accrue to a promisee "hen the promisor decides not to per!orm the promise It has %een held %y the -rivy Council in @uralidhar Chatter2ee vs International 4ilm Company 67 Cal & ) 617 that "hen a promisee puts an end to a contract %eing rightly entitled to do so, it shall %e deemed as i! he has rescinded a voida%le contract In vie" o! #ection J6 o! the Act, the promisee, in the events o! his putting an end to the contract, is %ound to return all the %ene!its received under the contract and in turn is entitled !or compensation !or all damages sustained %y him !or %reach o! contract %y the promisee 1 29 7ia%ility o! Loint -romisor 8 -romisee The legal lia%ility o! a 2oint promisor, 2oint promisee and other connected issues are set out in #ections 62, 65 8 66 o! the Indian Contract Act,1872 In terms o! #ection 62 o! the Act ,"hen t"o or more persons have made a 2oint promise then unless a contrary intention appears !rom the contract, all such person, during their 2oint lives, and a!ter the death o! any one o! them, his representative 2ointly "ith the survivor or survivors and a!ter the death o! last survivor, representatives o! all 2ointly must !ul!ill the promise. The a%ove la" can %e illustrated "ith the !ollo"ing e(ample &here A, < and C 2ointly %orro" a sum o! money !rom D all o! them are 2ointly lia%le to repay the amount &here in the a%ove e(ample, A dies, his legal representative, 7 "ould %e lia%le to repay the loan along "ith < and C, the remaining 2oint %orro"ers )o" let us consider the position "hether the promisee can en!orce his right against any one o! the 2oint promisors and i! so "hat are the rights and duties o! the other promisors to ma$e contri%utions In terms o! #ection 65 o! the Act, *i+ *ii+ "hen t"o or more persons ma$e 2oint promise, the promisor can compel any one o! the 2oint in the a%ove situation, the per!orming promisor can en!orce contri%ution !rom other 2oint promisors to per!orm the "hole o! promise promisors, in the a%sence o! e(press agreement to the contrary /(ample3 &here A,< and C have 2ointly signed a promissory note !or > 5111C=, and "here A is compelled to pay the entire amount o! > 5111C= , he is entitled recover %y "ay o! contri%ution o! > 1111C= each !rom the other t"o 2oint promisors namely < and C unless agreed to other"ise mutually

In the a%ove situation again, i! one o! the 2oint promisors namely < is una%le to contri%ute > 1111C=, A is entitled to recover > 1911C= !rom C "ho is the remaining 2oint promisor instead o! > 1111 4rom the a%ove, it is clear that the lia%ility o! 2oint promisors is 2oint and several and in the a%sence o! any special contract to the contrary, the amount due can %e recovered !rom any one o! the 2oint promisors 4or e(ample D,Q and U 2ointly %orro" !rom -, > 5111C=, <ecause the lia%ility o! the %orro"er is 2oint and severed, - can recover the amount either !rom D or !rom Q or !rom U or !rom all o! them 2ointly A 2oint promisor cannot claim that he %e sued along "ith all other 2oint promisors only I!, ho"ever the promisee sues one o! the promisors and o%tains a decree against him, he is precluded !rom %ringing a !resh suit against the remaining %orro"ers In the matter o! release o! one o! the 2oint promisors, %y another 2oint promisor, it must %e understood that such a release does not discharge other 2oint promisors nor does the released 2oint promisor "ould stand released to other 2oint promisor or promisors A#ection 66 o! the ActB 1 2J Fights o! Loint -romisees The rights o! t"o or more promisees "ho are $no"n as 2oint promisees is discussed in #ection 69 o! the Act In terms o! the said #ection ,&hen a person has made a promise to t"o or more persons 2ointly, then unless a contrary intention appears !rom the contract, the right to claim per!ormance rests, as %et"een him and them, "ith them during their 2oint lives, and a!ter the death o! any o! them "ith the representatives o! such deceased person 2ointly "ith the survivor or survivors, and a!ter the death o! the last survivor, "ith the representatives o! all 2ointly. 4or e(ample, A, in consideration o! > 9,111 lent to him %y < and C, promises < and C 2ointly to repay the sum "ith interest on a speci!ied day %ut < dies In such a case right to demand payment shall rest "ith <s legal representatives, 2ointly "ith C during Cs li!etime and a!ter the death o! C, "ith the legal representatives o! < and C 2ointly as < and C %oth are 2oint promisees. The a%ove principle o! 2oint promises is applica%le !or partners, 2oint mortgagees and mem%ers o! a ?indu Hndivided !amily In all these cases there is no single promisee There!ore in order to en!orce a promise all the 2oint promisees should sue the promisor I! any one o! the 2oint promisees re!uses to sue the promisor he "ould not %e a plainti!! %ut %e treated as de!endant AAshinsa <i%i vs A%dul Padar A1I12B 29 @ad 2J,59 @ohammed, Isaq vs #he$h ?aq A1I18B 12 C & ) 86, 8J, I5B 1 27 Time and -lace !or -er!ormance o! the -romise

#ections 6J to 91 o! the Act deal "ith this issue o! ,Time and place. !or per!ormance o! a promise 4ollo"ing are the rules o! per!ormance "here the promisee has not applied !or per!ormance &here no time is speci!ied !or per!ormance o! a promise, it must %e per!ormed "ithin a reasona%le time &hat is reasona%le time "ould depend on the !acts and circumstances o! each case Asection 6JB &here a promise is to %e per!ormed on a speci!ied date %ut no time is mentioned, then it can %e per!ormed any time on that day %ut during %usiness hours only A promisee may re!use to accept delivery *o! goods+, i! it is delivered a!ter %usiness hours 4or e(ample i! the promisor "ishes to deliver goods at a time "hich is %eyond %usiness hours, the promisee can re!use As regards the place o! per!ormance, "here no place is !i(ed !or the per!ormance o! a promise, it is the duty o! the promisor to as$ the promisee to !i( a reasona%le place )o distinction is made %et"een an o%ligation to pay money and an o%ligation to deliver goods or discharge any other o%ligation <ut generally the promise must %e per!ormed or goods must %e delivered at the usual place o! %usiness &here the promisor has not underta$en to per!orm the promisee "ithout an application %y the promisee and the promise is to %e per!ormed on a certain day it is the duty o! the promisee to apply !or per!ormance at a proper place and "ith in usual hours o! %usiness The a%ove are su%2ect to the position that promisor can per!orm any promise at any place, in any manner, at any time "hich the promisee prescri%es or sanctions 1 28 -er!ormance o! Feciprocal -romise The la" relating to reciprocal promise as set out in #ections 91 to 96 o! the Indian Contract Act,1872 General o%servation3 A contract may consist o! *i+ an act and a promise or *ii+ t"o promises one %eing the consideration !or the other The second type o! contract "hich involves t"o promises, one promise !rom each to the other party is $no"n as ,Feciprocal promise. This can %e illustrated "ith the !ollo"ing &hen A sells 911 quintals o! rice to < and < promises to pay the price on delivery, the contract "ould consist o! t"o promises one %y A to < and another %y < to A These promises are reciprocal promises ?ere the promise o! A is the consideration !or the promise o! < and vice versa The a%ove is in contrast to another situation In the a%ove e(ample i! < promises to pay the price a!ter a month, the contract "ould have t"o parts one is the act o! A and the second is promise o!

< This is not a reciprocal promise The per!ormance o! reciprocal promise can ta$e in di!!erent !orms= *i+ #imultaneously per!ormance o! reciprocal promise A#ection 91B3 In this case, promises have to %e per!ormed simultaneously The conditions and per!ormances are concurrent I! one o! the parties does not per!orm his promise, the other also need not per!orm his promise 4or e(ample "here A promises to deliver rice and < promises to pay the price on delivery, %oth have to %e per!ormed simultaneously ?ere %oth A and < must %e "illing and ready to per!orm their accepted part *ii+ -er!ormance o! reciprocal promise "here the order is e(pressly !i(ed3 &here the order o! per!ormance is e(pressly !i(ed, the promise must %e per!ormed in that order only &here A promises to %uild a house !or < and < promises to pay a!ter construction, here A must per!orm his promise %e!ore he can call upon < to !ul!ill his promise o! payment o! money As per!ormance o! the promise is a condition precedent to < per!orming his part o! the promise Any %reach o! promise %y A "ould ena%le < to avoid the contract *iii+ -er!ormance o! reciprocal promise %y implication3 &here the per!ormance o! reciprocal promise is not !i(ed e(pressly, some times the order is understood %y implication 4or e(ample "here A agrees to ma$e over certain stoc$ in trade to < and < agrees to provide certain security !or the value o! stoc$ in trade, then A need not ma$e over the stoc$ until < provides the security as %y implications < is required to per!orm his part !irstR other"ise A in the a%sence o! any security "ill not ma$e over the stoc$ to < *iv+ /!!ect o! one party preventing another !rom per!orming promise A#ection95B3&hen in a contract consisting o! reciprocal promises one party prevents the other !rom per!orming his promise, the contract %ecomes voida%le at the option o! the party so prevented The person so prevented is entitled to get compensation !or any loss he may have sustained !or the non= per!ormance The a%ove can %e illustrated "ith the !ollo"ing illustrations %y "ay o! t"o case la"s *a+ &here there is a contract !or sale o! standing tim%er and as per the terms seller is e(pected to cut and cord the standing tim%er %e!ore the %uyer ta$es delivery %ut seller cords only a part o! it , %ut neglects to cord the rest o! it, then the %uyer has a right to avoid the contract and claim compensation !or any loss sustained *%+ In the "ell $no"n case o! ; )ell vs Armstrong, an /nglishman "as engaged %y the Captain o! a Lapanese ship to act as !ireman on a voyage !rom /ngland to Lapan Euring the course o! the voyage Lapan declared &ar against China The /nglishman had to leave service

%ecause had he continued in service he "ould have incurred penalties under 4oreign /nlistment Act In e!!ect %ecause o! the "ar, the /nglishman "as prevented !rom discharging his part o! the contract The suit !iled %y him "as decreed in his !avour in spite o! %eing opposed %y the Lapanese shipping company It should %e appreciated that the Captain o! Lapanese ship could not have %rought a case against the /nglishman !or non=per!ormance as the Lapanese themselves "ere responsi%le !or preventing the /nglishman !rom per!orming his part o! the contract #ometimes the parties "ould %e prevented !rom discharging a part o! the contract %ut not the entire contract In such a case, the party so prevented need not avoid the !ull contract %ut per!orm the rest o! it *v+ *i+ /!!ects o! de!ault as to promise to %e per!ormed !irst3 #ection 96 o! the Act provides that promises may %e such that3 one o! them cannot %e per!ormed or *ii+ its per!ormance cannot %e demanded till the other has %een per!ormed /(ampleR &here < a ship o"ner agrees to convey As cargo !rom Calcutta to @auritius !or a !reight ?ere the %eginning part o! the transaction is on A as he has to provide the cargo to < to ena%le < to per!orm his promise Thus until cargo is handed over %y A A cannot e(pect < to per!orm his promise nor "ould < %e in a position to per!orm his promise This peculiar position arises %ecause o! de!ault on the part o! one o! the parties ?ere < is entitled to put an end to the contract and claim compensation !or any loss he may have su!!ered *vi+ -osition o! legal and illegal parts o! Feciprocal promises3 Feciprocal promise to do certain things that are legal and certain others that are not legal W #ection 97 o! the Act provides that i! reciprocal promises have t"o parts, the !irst part %eing legal and the second part %eing illegal, the legal part is a valid contract and the illegal part is void /(ample3 &here A agrees to sell his house to < !or > 91111C= and !urther A insists and it is agreed that i! the house is used as a gam%ling house, then < "ould pay another > 79111C= In this case the !irst part is valid as it is legal, the second part is void as it is illegal *vii+ Alternative promise one %ranch %eing illegal3 ,In the case o! the alternative promise, one %ranch o! "hich is legal and the other illegal, the legal %ranch alone can %e en!orced. 4or e(ample, in the nearest reversionary heir o! <, agreed to trans!er his inheritance to C, i! he succeeded to <R and he did not trans!er his o"n estate to C It "as held that !irst promise "as not en!orcea%le, as it amounted to an agreement to trans!er an estate on the mere chance o! succession prohi%ited %y #ection J o! the Trans!er o! -roperty Act, %ut the second promise "as en!orcea%le under #ection 98 as an alternative promise A@ahadeo -rasad #ingh vs @athura 152 7 C 521 AB 1 2I /!!ects o! 4ailure to -er!orm at a Time 4i(ed in a Contract in "hich Time is /ssential

#ection 99 o! the Act regulates the position o! per!ormance o! contract "here time is o! essence In terms o! this #ection, "here it is understood %et"een parties that time is an essential element, and "here one party is una%le to per!orm his part o! the promise either in !ull or in part "ithin the time speci!ied, then the contract is voida%le at the option o! the party either in !ull or in part to the e(tent o! non per!ormance o! the contract "ithin the time In these cases the contract is not voida%le i! time is not o! essence o! the contract, %ut the promisee is entitled !or compensation !or loss i! any su!!ered on account o! such !ailure In a contract "here time is o! essence and promisor is una%le to per!orm his part "ithin the time, as already stated the contract %ecomes voida%le at the option o! the other party ?o"ever the other party agrees that the promisor "ould per!orm his part su%sequently a!ter the time !i(ed, the promisee cannot claim any compensation !or loss or damage or in2ury unless he gives any notice to the promisor o! his intention to do so The ne(t question !or consideration is ho" to determine "hether time is essence o! a contract' ;rdinarily !rom a plain e(amination o! a contract it "ould %e di!!icult to ascertain !rom the terms o! the contract "hether time is essence o! the contract A promisee may have !ailed to per!orm his contract "ithin the speci!ied time Qet time may not %e treated as essence o! the contract in that case &hether time is essence o! a contract has to %e decided !rom the terms o! the contract In mercantile contracts, as %usiness "orld is ruled %y time and money any stipulation as to time and money is an essential condition The general principles that are !ollo"ed can %e enunciated as under *i+ *ii+ In transaction on sale o! gold, silver, %lue chip shares, time o! delivery is o! essence ?ere In transaction involving sale o! land, redemption o! mortgages, though certain time !rame is time "ill %e treated as essence o! contract !i(ed, any delay is not valued seriously provided 2ustice can %e done to parties ;! course even in sale o! land, time can %e made as on essence o! contract %y e(press "ords Contract cannot %e avoided "here time is not o! essence3 &hen there is delay in per!orming promise on e(ecuting a contract "here the time is not o! essence, parties concerned cannot avoid the contract ?o"ever in such cases promises must %e per!ormed "ith in a reasona%le time other "ise it %ecomes voida%le at the option o! the promisee /!!ect o! acceptance o! per!ormance out o! time3 /ven "here time is o! essence, the party "ho is entitled to avoid the contract can "aive the condition relating to ,per!ormance "ithin time.R %ut in such cases he cannot claim any compensation !or loss i! any su!!ered unless he has put the other party on notice

Fevie" o! !undamentals K K K -er!ormance o! contract= It is the per!orming o! all the promises and !ul!illing all the Actual per!ormance= &hen %oth the parties to a contract per!orm their promises and nothing Attempted per!ormance= &hen tender or o!!er o! per!ormance o! goodsC services is not o%ligations %y all the parties as per the term o! the contract remains to %e done in !uture %y them accepted or re2ected %y the promisee, In such situation the promisor is discharged !rom his o%ligation ?o"ever, "here promisee !ails to accept tender o! moneyCprice, the promisor is not discharged !rom his o%ligation to pay K party K K K In case o! 2oint promise= -romisee may compel any o! the 2oint promisors to per!orm unless &here no time !or per!ormance o! contract= The contract must %e per!ormed "ithin a &here time is essence= 4ailure to per!orm the contract at an agreed time "ill amount to a other"ise agreed %y the parties reasona%le time %reach o! condition o! the contract and "ill %e voida%le K Feciprocal promises= &here one promise !orm the considerationC part o! consideration !or each other 1 51 Impossi%ility o! -er!ormance Agreements %ecome void "hen it %ecomes impossi%le to per!orm them due to a variety o! reasons This is $no"n as ,impossi%ility o! per!ormance. and dealt "ith %y section 9J o! the Act In terms o! #ection 9J o! the Act ,An agreement to do an act impossi%le in itsel! is void A contract to do an act "hich, a!ter the contract is made, %ecomes impossi%le, or, *%y reason o! some event "hich the promisor could not prevent,+ unla"!ul, %ecomes void "hen the act %ecomes impossi%le or unla"!ul &here one person has promised to do something "hich he $ne", or "ith reasona%le diligence, might have $no"n, and "hich the promisee did not $no" to %e impossi%le or unla"!ul, such promisor, must ma$e compensation to such promisee !or any loss "hich such promisee sustains through the non=per!ormance o! the promise. *1+ Impossi%ility e(isting at the time o! contract3 /ven at the time o! entering into the agreement, it may %e impossi%le to per!orm certain contracts at the %eginning or inception itsel! The impossi%ility o! per!ormance may %e $no"n or may not %e $no"n to the parties Contract can %e per!ormed %y the parties personally, through agent, representative or third

*i+

I! the impossi%ility is $no"n to the parties 3 &here A agrees to pay < > 9111C= to < i!

he "ould s"im !rom <om%ay in Indian ocean to Aden in 7 days time, this is an agreement "here %oth the parties $no"n that it is impossi%le to s"im the distance %et"een <om%ay to Aden in 7 days time and hence is void *ii+ I! un$no"n to parties3 /ven "here %oth the promisor and the promisee are ignorant o! the impossi%ility the contract is void *iii+ I! $no"n only to the promisor3 &here the promisor alone $no"s it is impossi%le to per!orm or even i! he does not $no" %ut he should have $no"n a%out the impossi%ility "ith reasona%le diligence, the promisee is entitled to claim compensation !or the loss su!!ered %ecause o! !ailure o! the promisor to per!orm *2+ #upervening impossi%ility3 &hen per!ormance o! a promise %ecomes impossi%le on account o! su%sequent developments o! events or change in circumstances, "hich are %eyond the contemplation o! parties, the contract %ecomes void #upervening impossi%ility can arise due to a variety o! circumstances as stated %elo" *i+ Accidental destruction o! the su%2ect matter o! the contract 3 A had agreed "ith < to hire !or rent his music hall !or holiday concerts on certain speci!ied dates The music hall "as destroyed %e!ore the speci!ied dates and hence it %ecame impossi%le to hold stage concerts It "as held that as the music hall ceased to e(istR it is a case o! supervening impossi%ility and %oth the parties "ere e(cused !rom the per!ormance o! the contract ATaylor vs Cald"ell 5<8#82JB *ii+ )on=e(istence or non occurrence o! a particular state o! things3 It "as agreed to %y the de!endant through a contract to have !rom the plainti!! a !lat !or speci!ied days !or "itnessing the coronation procession o! Ping /d"ard 0II The said procession "as cancelled and it did not ta$e place There!ore the de!endant re!used to pay the %alance rent It "as held that the !oundation o! the contract had totally !ailed and here the %alance o! rent amount cannot %e recovered !rom the de!endant APrell vs ?enry 2 P< 761B *iii+ Incapacity to per!orm a contract o! personal services3 In case o! contract o! personal service, disa%ility or incapacity to per!orm, caused %y an Act o! God e g illness, constitutes la"!ul e(cuse !or non=per!ormance o! the contract AFo%inson vs Eavison 7 F J/( 2JIB *iv+ Change in la"3 -er!ormance o! a contract may also %ecome impossi%le due to change in la" su%sequently The la" passed su%sequently may prohi%it the act "hich may !orm part as %asis o! contract ?ere the parties are discharged !rom their o%ligations 4or e(ample A and < may agree to start a %usiness !or sale o! lottery and contri%ute capital !or the %usiness I! the %usiness o! sale o! lottery tic$et is %anned %y a su%sequent la", parties need not $eep up their legal

o%ligations *v+ ;ut%rea$ o! "ar3 ;ut %rea$ o! "ar may %e a!!ect the en!orcea%ility o! contracts in many "ays li$e emergency legislations controlling prices rela(ation o! trade restrictions and prohi%iting or restraining transaction "ith alien enemy Eoctrine o! 4rustration3 The idea o! ,supervening impossi%ility. is re!erred to as doctrine o! !rustration in H P In order to decide "hether a contract has %een !rustrated, it is necessary to consider the ,intention o! parties as are implied !rom the terms o! contract. ?o"ever in India the doctrine o! !rustration is not applica%le Impossi%ility o! per!ormance must %e considered only in term o! section 9J o! the Act #ection 9J covers only supervening impossi%ility and not implied terms This vie" "as upheld %y #upreme Court in #atya%rata Ghose vs @ugneeram <angur A I F *1I96+ # C 66 and Alopi -rasad vs Hnion o! India A F 1IJ1 # C 988 &hat "ould not constitute ground o! impossi%ility3 0arious decisions "hich have identi!ied certain situations as not constituting grounds o! impossi%ility = *a+ A promised to < that he "ould arrange !or <s marriage "ith his daughter A could not persuade his daughter to marry < < sued A "ho pleaded on the ground o! impossi%ility that he is not lia%le !or any damages <ut it "as held that there "as no ground o! impossi%ility It "as held that A should not have promised "hat he could not have accomplished 4urther A had chosen to ans"er !or voluntary act o! his daughter and hence he "as lia%le *%+ The de!endant agreed to supply speci!ied quantity o! cotton manu!actured %y a mill "ith in a speci!ied time to plainti!! The de!endant could not supply the material as the mill !ailed to ma$e any production at that time The de!endant pleaded on the ground o! impossi%ility "hich "as not approved %y The -rivy Council and held that contract "as not per!ormed %y the de!endant and he "as responsi%le !or the !ailure A?amandrai vs -ragdas 911AB *c+ The de!endant agreed to procure cotton goods manu!actured %y 0ictoria @ills to plainti!! as soon as they "ere supplied to him %y the mills It "as held %y #upreme Court that the contract %et"een de!endant and plainti!! "as not !rustrated %ecause o! !ailure on the part o! 0ictoria @ills to supply goods AGanga #aran vs 4inn Fama Charan,A I F 1I92 # C IB *d+ A doc$ stri$e "ould not necessarily relieve a la%ourer !rom his o%ligation o! unloading the ship "ithin speci!ied time *e+ In #atya%rat Ghosh vs @ugneeram <angur 8 Co A I F 1I96 # C 66, Calculate ?igh court held in a conte(t o! impossi%ility o! per!ormance that ,having regard to the actual e(istence o! "ar condition, the e(tent o! the "or$ involved and total a%sence o! any de!inite period o! time agreed to the parties, the contract could not %e treated as !alling under impossi%ility o!

per!ormance In the given case the plainti!! had agreed to purchase immediately a!ter out%rea$ o! "ar a plot o! land This plot o! land "as part o! a scheme underta$en %y the de!endant "ho had agreed to sell a!ter completing construction o! drains, roads etc ?o"ever the said plot o! land "as requisitioned !or "ar purpose The de!endant thereupon "rote to plainti!! as$ing him to ta$e %ac$ the earnest money deposit, thin$ing that the contract cannot %e per!ormed as it has %ecome impossi%le o! %eing per!ormed The plainti!! %rought a suit against the de!endant that he "as entitled !or conveyance o! the plot o! land under condition speci!ied in the contract It "as held that the requisition order did not ma$e the per!ormance impossi%le &hile 2udging the impossi%ility o! per!ormance issue the Courts "ould %e very cautious since contracting parties o!ten %ind themselves to per!orm at any cost o! events "ithout regard to price prevailing and mar$et conditions Fevie" o! !undamentals K *i+ *ii+ K K A contract is discharged %y impossi%ility o! its per!ormance K

Impossi%ility may %e o! t"o types 3 Initial Impossi%ility=e(isted at the time o! ma$ing the agreement #u%sequent or supervening impossi%ility=arises a!ter !ormation o! contract Eoctrine o! !rustration applies in the case o! supervening impossi%ility, "here= the This doctrine does not apply= "here the per!ormance simply %ecomes di!!icult

K The contract %ecomes void "hen the per!ormance o! the contract %ecomes impossi%le per!ormance o! contract has %ecome impossi%le, and "here the o%2ect o! the contract has !ailed Ccommercially impossi%leC impossi%ility induced %y the act or the conduct o! any person etc 1 51 Appropriation o! -ayments &here a person AEe%torB o"es a num%er o! de%ts to another person ACreditorB, and "hen he releases certain payments, then the question arises as to ho" to ad2ust the receipt against so many dues This issue is considered and ans"ered in #ections 9I, J1 and J1 o! the Act under the heading Appropriation o! payments *i+ Application o! payment "here de%t to %e discharged is indicated3 In term o! section 9I o! the Act ,&here a de%tor, o"ing several distinct de%ts to one person, ma$es a payment to him either "ith e(press intimation or under circumstances implying that the payment is to %e applied to the discharge o! some particular de%t, the payment, i! accepted, must %e applied accordingly. &here a de%tor o"es a num%er o! de%ts and he pays an amount "ith e(press or implied instructions to"ards appropriation, the de%tor is at "ill to appropriate to any de%t and the creditor is %ound %y it This is set out in the 7atin @a(im o! ,quicquid sovitur, sovit sectionundum modum solventis. meaning that "hat ever is paid, is paid according to intention or manner o!

party paying The right o! de%tor to decide the appropriation is also $no"n as decision in Claytons case &hat is the position i! the de%tor does not e(pressly state the method o! appropriation' Then "e have to go %y the circumstances o! the case 4or e(ample a de%tor "ho o"es among other de%ts > 2111C= to a creditor and pays > 2111C= on a given day "hen the de%t o! > 2111C= !alls due, then the amount must %e accordingly applied and the de%t %e discharged accordingly *ii+ Application o! payment "here de%t to %e discharged is not indicated3 ,&here the de%tor has omitted to intimate and there are no other circumstances indicating to "hich de%t the payment is to %e applied, the creditor may apply it at his discretion to any la"!ul de%t actually due and paya%le to him !rom the de%tor "hether its recovery is or is not %arred %y the la" in !orce !or the time %eing as to the limitation o! suits. 4rom the a%ove it can %e seen that the creditor en2oys the right to appropriate even to a de%t "hich is %arred %y limitation It "as held %y 7ord @acnaughten in Cory <ros 8 Co vs ;"ner o! the @ecca *1817+ A C 28J 8 2I5, that i! the de%tor does not ma$e any appropriation, at the time o! payment, the right devolves on the creditor Creditors have a right to decide till the very last moment The a%ove decision "as !ollo"ed in a num%er o! important cases including in the !amous case o! 0in$atadri Appa Fao vs -arthasarthi Appa Fao A*1I21+ 7 F 68 I A 191R 66 @ad 971 and 975B In the said case it "as held that creditor can decide at his discretion on the appropriation o! payment to"ards any la"!ul de%t even i! %arred %y limitation I! there is any de%t carrying interest and i! there are no e(press or implied instructions the amount paid should %e appropriated to"ards payment o! interest and then to capital *iii+ Application o! payment "hen neither party appropriates3 In terms o! section J1 o! the Act, "here neither party appropriates= *a+ the payment shall %e applied in discharge o! de%ts in order o! time, and *%+ i! the de%ts are o! equal standing the payment shall %e applied in discharge o! each proportionately The a%ove appropriation ta$es place "hether or not the de%t is %arred %y limitation 4or e(ample "here there are t"o de%ts one > 911C= and another > 711C= !alling due on the same day, and i! the de%tor pays > J11C= the appropriation shall %e prorata o! > 291C= and > 591C= !or the t"o de%ts 1 52 Contract, &hich )eed not %e -er!ormed A contract "ould not require per!ormance under circumstances spelt out in #ections J2 to J7 o!

the Act These circumstances are *i+ novation, *ii+ rescission,*iii+ alteration and *iv+ remission #ection J2 o! the Act provides that ,i! the parties to a contract agree to su%stitute a ne" contract !or it or to rescind or alter it, the original contract need not %e per!ormed. *a+ /!!ect o! novation3 )ovation means su%stitution &here a given contract is su%stituted %y a ne" contract it is novation The old contract, on novation ceases It need not %e per!ormed )ovation can ta$e place "ith mutual consent ?o"ever novation can ta$e place %y su%stitution o! ne" contract %et"een the same parties or %et"een di!!erent parties )ovation results in discharge o! old contract This can %e illustrated as !ollo"s = A o"es money to < under a contract It is agreed %et"een A, < and C that < shall thence!orth accept C as his de%tor, instead o! A The old de%t o! A to < is at an end, and a ne" de%t !rom C to < has %een contracted *%+ /!!ect o! rescission3 In case o! rescission, the old contract is cancelled and no ne" contract comes in its place A contract is also discharged %y rescission #ome times parties may enter into an agreement to rescind the previous contract #ometimes, the contract is rescinded %y implication or %y non= per!ormance !or a long time "ithout each other complaining a%out it Ei!!erence %et"een novation and rescission3 &hile novation involves rescission, there is no novation in rescission <oth in novation and rescission the contract is discharged %y mutual agreement In %oth cases parties enter into a ne" contract to come out o! the old contract The ne" agreement is the consideration !or rescission *c+ /!!ect o! alteration3 &here the contract is altered, the original contract is rescinded ?ence the old one need not %e per!ormed "hereas the ne" one has to %e per!ormed Alteration involves %oth rescission and novation The line o! di!!erence %et"een alteration and novation is very thin &hile there can %e very minor alterations, there can not %e unilateral material alteration to a contract I! it is done it "ill %e void )ovation and alteration3 <oth in novation and in alteration the old contract need not %e per!ormed The main difference between the two are *a+ novation involves changes in the terms o! contract It also sometimes means change in the parties to contract It in e!!ect operates as a su%stitution o! the old contract *%+ in alteration there are only changes in the term o! contract, %y mutual consent The parties to contract remain the same *c+ *d+ in alteration there is no su%stitution o! old termsR only some terms and conditions change Femission o! per!ormance

Femission means "aiver #ection J5 o! the Act deals "ith remission It provides that ,every promisee may dispense "ith or remit "holly or in part, the per!ormance o! the promise made to him or may e(tend the time !or such per!ormance or may accept instead o! it any satis!action "hich it thin$s !it. Thus the promisee can "aive either in !ull or in part the o%ligation o! the promisor or e(tend the time !or per!ormance 4or e(ample "here A o"es < a sum o! > 1 la$h, < may accept a part o! it in !ull and !inal settlement o! the due or "aive his entire claim &hile granting the time to the promisor, the promisee cannot do so !or his %ene!it %ut can do so only !or the %ene!it o! the promisor 4or e(ample "here A promises < that he "ould deliver certain goods %y a certain date, < can e(tend the time %ut he cannot ta$e advantage to charge interest on the e(tended time #imilarly a promisee can accept any other per!ormance to his satis!action instead o! the speci!ied stipulated per!ormance 4or e(ample "here A promises to sell his horse !or a consideration o! > 9111C= to <, A may instead o! cash consideration o! > 9111C=may accept 2e"ellery "orth Fs 9,111C=in !ull satis!action o! the consideration In a situation li$e this the essential element o! satis!action is that the promisee must accept the consideration unequivocally I! a promisor tenders some thing in !ull satis!action %ut the promisee does not accept it or accepts in part per!ormance, such satis!action "ill !all outside the am%it o! section J5 o! the Act A #hyamnagar tin 4actory vs #no" &hite 4ood -roducts, A I F *1IJ9+ Cal 96B It should %e noted that novation, rescission or alteration cannot ta$e place "ithout consideration %ut in case o! part or complete rescission no consideration is required The promisee can dispense "ith per!ormance "ithout consideration and "ithout a ne" agreement 1 55 Festoration o! <ene!it under a 0oida%le Contract It has already %een seen that certain contracts re!erred to in #ections 1I, 1IA, 5I, 91, 96 8 99 are voida%le The question !or consideration is "hat is the e!!ect o! recession o! contract %y that person at "hose option the contract is voida%le The !ollo"ing are the e!!ects o! such an action *i+ *ii+ The other party need not per!orm the promise Any %ene!it received %y the person rescinding it must restore it to the person !rom "hom it

"as received A voida%le contract "hich is voida%le either at its inception or su%sequently comes to an end "hen it is avoided %y the party at "hose option it is avoided In such a case, not only the contract need not %e per!ormed there is also restoration o! %ene!it *a+ the in2ured party on account o! non per!ormance o! the contract is entitled to recover

compensation !or damages su!!ered and *%+ %ene!its received must %e restored In @urlidhar vs International 4ilm Co A I F 1I65 - C 56, the plainti!! having "rong!ully repudiated the contract, the de!endants rescinded it uCs 5I o! the Act The plainti!! %rought a suit to recover > 6111C= paid to the de!endant ?eld de!endant "as %ound to restore the amount a!ter setting o!! such damages &hen an insurance company has rescinded the policy %ecause the policy holder could not disclose material in!ormation, it should re!und the premium a!ter ma$ing necessary ad2ustments !or e(penses already incurred 1 56 ;%ligations o! -erson "ho has Feceived Advantage under 0oid Agreement or one <ecoming 0oid In terms o! #ection J9 o! the Act, "here *a+ an agreement is discovered to %e void or *%+ restore it or *%+ a contract %ecomes void any person "ho received an advantage must *a + pay compensation !or damages in order to put the position prior to contract In Ehuramsey vs Ahgmedhai *18I5+ 25 <om 19, the plainti!! hired a godo"n !rom the de!endant !or 12 months and paid the advance in !ull A!ter a%out seven months the godo"n "as destroyed %y !ire, "ithout any !ault on the part o! plainti!! &hen the plainti!! claimed re!und o! the advance, it "as upheld that he "as entitled to recover the rent !or the une(pired term The ne(t issue is the %ene!it "hich has to %e returned must have %een received under the contract Any %ene!it received "hich is ancillary to main contract need not %e returned 4or e(ample, the deposit paid !or a transaction o! sale o! house %et"een parties, need not %e returned 2ust %ecause the sale transaction could not ta$e place This "as on the ground that the deposit is only a security and not part o! main contract 1.3 !ischar"e of a Contract A contract may %e discharged in eight "ays as discuss hereunder *a+ Eischarge %y per!ormance3 Eischarge %y per!ormance "ill ta$e place "hen there is *i+ Actual per!ormance or *ii+ Attempted per!ormance Actual per!ormance C discharge ta$es place "hen parties to the contract !ul!ill their o%ligations "ithin time and in the manner prescri%ed ?ere each party has done "hat he has to do under the contract In attempted per!ormance the promisor o!!ers to per!orm his part %ut the promisee re!uses to accept his part This is also $no"n as tender *%+ Eischarge %y mutual agreement3 Eischarge also ta$es place "here there is su%stitution

AnovationB rescission, alteration and remission In all these cases old contract need not %e per!ormed *c+ Eischarge %y impossi%ility o! per!ormance3 A situation o! impossi%ility may have e(isted at the time o! entering into the contract or it may have transpired su%sequently *also $no"n as supervening impossi%ility+ Im#ossibilit$ can arise when *i+ *ii+ there is an un!oreseen change in la" destruction o! su%2ect matter

*iii+ non=e(istence or non occurrence o! a state o! thing to !acilitate happening o! the agreement *iv+ personal incapacity o! the promisor *v+ declaration o! "ar *d+ Eischarge %y lapse o! time3 -er!ormance o! contract has to %e done "ithin certain prescri%ed time In other "ords it should %e per!ormed %e!ore it is %arred %y la" o! limitation In such a case there "as no remedy !or the promisee 4or e(ample "here ,then the de%t is %arred %y la" o! limitation *e+ *!+ Eischarge %y operation o! la"3 &here the promisor dies or goes insolvent there is a Eischarge %y %reach o! contract3 &here there is a de!ault %y one party !rom per!orming his discharge %y operation o! la" part o! contract on due date then there is %reach o! contract <reach o! contract can %e actual %reach or anticipatory %reach &here a person repudiates a contract %e!ore the stipulated due date, it is anticipatory %reach In %oth the events, the party "ho has su!!ered in2ury is entitled !or damages 4urther he is discharged !rom per!orming his part o! the contract *g+ A promisee may remit the per!ormance o! the promise %y the promisor ?ere there is a discharge #imilarly the promisee may accept some other satis!action Then again there is a discharge on the ground o! accord and satis!action *h+ &hen a promisee neglects or re!uses to a!!ord the promisor reasona%le !acilities or opportunities !or per!ormance, promisor is e(cused %y such neglect or re!usal Fevie" o! !undamentals K -e!ormance o! contract leads to discharge o! contract There are other alternative methods o! discharge "here a contract "ould not require per!ormance These circumstances are *i+ novation, *ii+ rescission,*iii+ alteration and *iv+ remission A contract may also %e discharged %y

agreement o! the parties or %y lapse o! time !or per!ormance or %y operation o! la",or impossi%ility o! per!ormance or %y %reach o! contract K A voida%le contract "hich is voida%le either at its inception or su%sequently comes to an end "hen it is avoided %y the party at "hose option it is avoided In such a case, no contract need to %e per!ormed %ut there is a restoration o! %ene!it K Any agreement "hich is discovered to %e void or a contract "hich %ecomes void,there any person "ho received an advantage must restore it or pay compensation !or damages in order to put the position prior to contract The Indian Contract Act, 1872 1 J1

7earning o%2ectives A!ter studying this unit, you "ould %e a%le to = K K K K Hnderstand the concept o! %reach o! contract and various modes thereo! Hnderstand the rule laid do"n in V?adley vs <a(endaleV !or a"ard o! compensation <e clear a%out ho" the damages are to %e measured )ote the circumstances "hen vindictive damages are a"arded

7et us no" e(amine %reach o! contract and the methodology !or estimation o! compensation !or such %reach o! contract 1 5J Anticipatory <reach o! Contract &here the promisor re!uses to per!orm his o%ligation even %e!ore the speci!ied time !or per!ormance and signi!ies his un"illingness, then there is an anticipatory %reach 7eading case on this point is ?ochester vs Ee 7a Tour*1895+ 2 / 8 < J78 In this case de!endant had engaged the services o! plainti!! as his attendant !or a tour o! the continent !rom Lune 1st on a !ee o! O11 per month !or three months ?o"ever de!endant changed his mind %e!ore Lune 1st and in!ormed the plainti!! that his services are not required This is thus a case o! anticipatory %reach o! contract It "as held in this case that plainti!! could put an end to the contract even %e!ore the due date vi: 1st Lune and he need not "ait !or the date meant !or per!ormance o! the promise The principle o! anticipatory %reach "as "ell summed up in 4rost vs Pnight*1872+ 7F 7 /( 111 In the a%ove case it "as held that promisee could "ait till the due date o! per!ormance also %e!ore he puts an end to the contract In such a case the amount o! damages "ill vary depending on the circumstances This can %e e(plained "ith the !ollo"ing illustration3 D agrees to sell Q certain quantity o! "heat at a certain price vi: Y > 111C= per quintal %y 5rd @arch ?o"ever on 2nd

4e%ruary D gives notice o! his un"illingness to sell the given goods -rice o! "heat on that date is > 111C= per quintal Q has a right to repudiate the contract on the same day instead o! "aiting !or the date o! per!ormance ;n that day 2nd 4e%ruary, he is entitled to recover damages o! > 11C= per quintal this %eing the di!!erence %et"een mar$et price and contracted price I! on the other hand, he chooses to "ait till 5rd @arch and the price on that date is > 129C=, he can recover damages Y > 29C= per quintal The third possi%ility is that i! %et"een 2nd 4e%ruary and 5rd @arch, Government prohi%its sale o! "heat, then the contract %ecomes void and Q "ill not %e a%le to recover any damage "hatsoever ?ence !rom this illustration it "ould %e clear that "hen the promisee postpones his right to repudiate the promise, it "ould operate to the advantage o! the promisor also depending on circumstances Actual <reach o! Contract &here one o! the parties %reaches the contract %y re!using to per!orm the promise on due date, it is $no"n as actual %reach o! contract In such a case the other party to contract o%tains a right o! action against the one "ho %reached the contract 1 58 @easurement o! Eamages In cases "here there is a %reach o! contract, the promisor "ho %reaches is lia%le to pay compensation !or damages su!!ered %y the promisee The compensation can %e classi!ied as3 *i+ *ii+ those !or damages that usually arise in the event o! %reach o! contract and those !or damages "hich parties $no" and anticipated at the time o! entering into the

contract called special damages This $ind o! special damages can %e claimed only on previous notice ?o"ever no compensation is paya%le !or any remote or any indirect loss &hile assessing the damage the inconvenience caused to the aggrieved party on account o! non=per!ormance should %e assessed care!ully, as the party entitled !or compensation, he has a duty to ta$e steps to minimise the loss The rules relating to compensation "ere enunciated in detail in ?adley vs <a(endale *1896+ I /( 561 In this case, the mill o! the plainti!! had to %e stopped %ecause o! a %ro$en cran$ sha!t The plainti!! sent the cran$ sha!t as a pattern !or manu!acturing a ne" one Till the arrival o! the ne" cran$ sha!t, the mill could not %e resumed ?ence mill incurred losses ?o"ever this position "as not properly conveyed to the de!endant, the carrier There "ere some delay on the part o! the de!endant in delivering the cran$ sha!t to the manu!acturer "hich in turn delayed the reopening o! the mill As a result o! this, there "ere losses to the mill The de!endant claimed compensation !or loss in pro!it o! the mill ?o"ever this "as not accepted %y court on the ground the plainti!! did not e(plain to de!endant that delay in delivering the cran$ sha!t "ould delay resumption o! the

mill and this "ould result in losses to the plainti!! @adras ?igh Court in @adras Fail"ay Company vs Govind Fam, @ad 17J upheld the same principle as a%ove In that case a tailor had given his se"ing machine to rail"ays to %e delivered at a station as a consignment ?e did not mention that any delay in delivering the se"ing machine "ould result in damages !or the %usiness o! the tailor as he had planned to do good %usiness at the place proposed "here a !estival "as to %e held The se"ing machine "as delivered a!ter the !estival "as over ?eld Fail"ays "ere not responsi%le !or the damages as the Fail"ay authorities "ere not in!ormed o! the speci!ic purpose o! delivery o! the se"ing machine namely %usiness during a !estival 1 5I 7ia%ility !or Eamages The lia%ility to pay damages is o! !our $inds They are3 *i+ lia%ility !or special damages *ii+ lia%ility !or e(emplary damages lia%ility to pay damages !or deterioration *iii+ lia%ility to pay nominal damages and *iv+ *i+

caused %y delay )o" let us discuss each one o! them= 7ia%ility !or special damages3 &here it is understood %et"een parties that in the event o! %reach o! contract, there "ould %e special damages also in addition to normal damages, then special damages "ould %e paya%le In our given e(ample a%ove i! the tailor had in!ormed a%out the special circumstances, special damages "ould have %ecome paya%le *ii+ 7ia%ility !or e(emplary damages3 These situations may arise mainly in t"o cases namely *i+ %reach o! promise to marry and *ii+ "rong!ul dishonour o! cheques o! customer %y %an$ In case o! %reach o! promise to marry the damages are a"arded ta$ing into account the in2ury or humiliation "hich the aggrieved person "ould have su!!ered In case o! "rong!ul dishonour o! cheques the damages "ould depend upon the loss o! credit and reputation su!!ered %y the customer The damages could %e very heavy i! loss had %een su!!ered %y a %usinessman, "hen compared to a non=%usinessman customer 4or e(ample @rs G, a non= trader paid a cheque !or OI1 and 1J shillings dra"n on &estminster <an$ to her landlord !or rent The cheque "as dishonoured %y the %an$ <ut she "as a"arded damages o! only 61 shilling as nominal damages AGi%%ons vs &estminster <an$ *1I5I+ 2 P < 882B #imilarly "here the value o! cheque is small the damages could %e very heavy in comparison to a situation "here the value o! cheque is heavy This is on the theory that dishonour o! a small value o! cheque "ould cause more damages to the honour o! the customer *iii+ 7ia%ility to pay nominal damages3 )ominal damages are a"arded in those cases o! %reach o! contract "here no damage has %een su!!ered #uch damages are a"arded only to esta%lish the right to decree !or %reach o! contract #uch damages are !or nominal amounts li$e ten rupees or

even ten paise *iv+ Eamages !or deterioration caused %y delay3 Compensation can %e recovered even "ithout notice !or damages or deterioration caused to goods on account o! delay %y carriers amounting to %reach o! contract ?ere the "ord ,deterioration. means not only physical damages %ut also loss o! opportunity In &ilson vs 7ancashire and Qor$shire Fail"ay Company 91 7LC- 252, the plainti!! %ought velvet "ith a vie" to ma$ing it into caps !or sale during spring <ut due to delay in transit, he "as una%le to use the velvet !or ma$ing caps !or sale during season It "as held that the !all in value o! sale o! cloth in consequence o! the same having arrived a!ter the season amounted to deterioration It "as here held that the plainti!! is entitled !or compensation "ithout notice 1 61 ?o" to Calculate the Eamage In case o! a contract !or sale o! goods, "here the %uyer %rea$s the contract, the damages "ould %e the di!!erence %et"een contract price and mar$et price as on the date o! %reach #imilarly "here the seller %rea$s the contract, the %uyer can recover the di!!erence %et"een mar$et price and contract price as on date o! %reach I! the seller retains the goods a!ter the contract has %een %ro$en %y the %uyer he cannot recover !rom the %uyer any !urther loss even i! the mar$et !alls Again he is not lia%le to have the damages reduced i! the mar$et rises In Lamal vs @ulla Ea"ood *1IJ1+ 65 I A J, the de!endant agreed to purchase !rom the plainti!!, certain shares on Eecem%er 51, %ut "rong!ully re2ected them "hen tendered on date The di!!erence %et"een the contract price and mar$et price amounted to > 1,1I,218R the plainti!! recovered a part o! the loss %y selling those shares in a rising mar$et and the actual loss amounted to > 7I,882 The plainti!!, ho"ever, sued the de!endant claiming > 1,1I,218 as damages and the -rivy Council allo"ed the claim in !ull Euty to mitigate loss3 The person "ho su!!ers losses on account o! %reach o! contract %y the other party must ta$e all reasona%le steps to mitigate the loss 1 61 Compensation !or <reach o! Contract "here the -enalty is stipulated !or The compensation !or %reach o! contract !alls into t"o %road categories namely liquidated damage and penalty 7iquidated damage is a genuine pre=estimate o! compensation !or damages !or certain anticipated %reach o! contract This estimate is agreed to %et"een parties to avoid at a later date detailed calculations and the necessity to convince outside parties -enalty on the other hand is an e(travagant amount stipulated and is clearly unconsciona%le and

has no comparison to the loss su!!ered %y the parties In terms o! #ection 76 o! the Act ,"here a contract has %een %ro$en, i! a sum is named in the contract as the amount to %e paid in case o! such %reach, or i! the contract contains any other stipulation %y "ay o! penalty, the party complaining o! the %reach, can claim "hether or not actual damages or loss is proved to have %een caused there%y, !rom the other party, a reasona%le compensation not e(ceeding the amount so named, or as the case may %e the penalty stipulated !or Any stipulation !or payment o! increased interest is a stipulation !or payment o! penalty "hich has to %e paid In terms o! #ection 76, courts are empo"ered to reduce the sum paya%le on %reach "hether it is penalty or ,liquidated damages. provided the sum appears to %e unreasona%ly high #upreme Court in #ri Chunni 7al vs @ehta 8 #ons 7td A I F 1IJ2 # C 1516 laid do"n the ratio that the aggrieved party should not %e allo"ed to claim a sum greater than "hat is speci!ic in the "ritten agreement <ut even there the court has po"ers to reduce the amount i! it considers it reasona%le to reduce 7iquidated damages and penalty3 4ollo"ing are the important di!!erences %et"een liquidated damages and penalty *i+ 7iquidated damages are imposed %y "ay o! compensation, %ut penalty is imposed %y "ay o! punishment *ii+ 7iquidated damages are assessed amounts o! loss %ased on actual or pro%a%le calculation -enalty is not %ased on actuals or pro%a%les It is imposed to prevent parties !rom committing the %reach *iii+ Though the /nglish 7a" recogni:es the di!!erence %et"een the t"o, #ection 76 o! the act does not recogni:e any di!!erence %et"een the t"o Apart !rom claiming damages !or %reach o! contract, the !ollo"ing other remedies are also availa%le *i+ Fescission o! contractR &here one party %reaches the contract, the other party can treat it as rescinded In this case the other party is a%solved o! his o%ligation and is entitled to compensation !or damages "hich he su!!ered *ii+ #uit upon quantum meruit3 The phrase quantum meruit literally means ,as much as is earned. or ,according to the quantity o! "or$ done. A person "ho has %egun a civil contract "or$ and has to later stop the "or$ %ecause the other party has made the per!ormance impossi%le, is entitled to receive compensation on the principle o! Nuantum @eruit 4ollo"ing are instances "here quantum meruit may arise3

*a+

&here the "or$ has %een done and accepted under a contract "hich is su%sequently

discovered to %e void In such a case, the person "ho has per!ormed his part o! the contract is entitled to recover the amount !or the "or$ done and the party, "ho receives and accepts the %ene!it under such contract, must ma$e compensation to the other party *%+ &here a person does some act or delivers something to another person "ith the intention o! receiving payment, the other person is %ound to ma$e payment i! he accepts such services or goods or en2oys the %ene!its *c+ &here the contract is divisi%le and "here a party per!orms a part o! the contract and re!uses to per!orm the remaining part, the party in de!ault may sue the other party "ho en2oyed the %ene!it o! the part per!ormance *iii+ #uit !or speci!ic per!ormance3 &here damages are not an adequate remedy in the case o! %reach o! contract, the court may in its discretion on a suit !or speci!ic per!ormance direct the party in %reach, to carry out his promise according to the terms o! the contract Fevie" o! !undamentals K <reach o! contract means !ailure or re!usal o! any one party to per!orm his contractual o%ligations under the contract It is either actual or anticipatory %reach o! contract K Actual <reach=4ailureCre!usal o! any one party to per!orm his contractual o%ligations under the contract "hen it is due ?ere the contract is voida%le K Anticipatory %reach o! contract= &here the promisor re!uses to per!orm his o%ligation even %e!ore the speci!ied time !or per!ormance and signi!ies his The Indian Contract Act, 1872 1 J9 1 JJ <usiness 7a"s, /thics and Communication un"illingness, then there is an anticipatory %reach ?ere the aggrieved party may immediately treat the contract voida%le or "ait till the time "hen the per!ormance is due K K K K K Aggrieved party has !ollo"ing remedies on the %reach o! contract= Fescission o! the Fescission= Cancellation o! a contract %y the consent o! all partiesC %y aggrieved party Eamages= @onetary compensation paya%le to the in2ured party !or the loss due to %reach o! 7iquidated Eamages=-re=estimated amount o! a damges that are mentioned in a contract and -enalty=Amount speci!ied in a contract "hich is high and disproportionate !rom the amount contract, suit !or damages, suit !or quantum meruit, speci!ic per!ormance and !or in2unction

contract %y the de!aulted party are paid on the %reach o! contract o! damages in the event o! its %reach This amount is paid as o! punishment to avoid the %reach o! contract

The Indian Contract Act, 1872 7earning o%2ectives

1 J7

H)IT W J3 C;)TI)G/)T A)E #-/CIA7 C;)TFACT# A!ter studying this unit, you "ould %e a%le to = K that you are a%le to distinguish %et"een a contract o! any o! these types and a simple contract K <e !amiliar "ith the rules relating to en!orcement o! these in order to gain an understanding o! rights and o%ligations o! the parties to the contract In this unit "e shall %rie!ly e(amine *a+ Contingent contracts and the rules regarding their en!orcea%ility and *%+ Nuasi contracts 1 62 Contingent Contract In terms o! #ection 51 o! the Act contingent contract is a contract to do or not to do something, i! some event collateral to such contract does or does not happen Contracts o! indemnity and contracts o! insurance !all under this category 4or instance i! A contracts to pay < > 111111C= i! <s house is destroyed %y !ire then it is a contingent contract /ssentials o! a contingent contract *a+ The per!ormance o! a contingent contract "ould depend upon the happening or non= happening o! some event or condition The condition may %e precedent or su%sequent *%+ The event re!erred to is collateral to the contract The event is not part o! the contract The event should %e neither per!ormance promised nor a consideration !or a promise &here A agrees to deliver 111 %ags o! "heat and < agrees to pay a!ter delivery, this is a conditional contract and not a contingent contract #imilarly "here A promises to pay < > 11111C= i! he marries C is not a contingent contract %ut a conditional contract *c+ The contingent event should not %e a mere "ill o! the promisor The event should %e contingent in addition to %eing the "ill o! the promisor 4or e(ample i! A promises to pay < > 11111C= i! A le!t !or Eelhi !rom @um%ai on a particular day, it is a contingent contract %ecause though As leaving !or Eelhi is his o"n "ill, it cannot happen only at his "ill 1 65 Fules Felating to /n!orcement The rules relating to en!orcement o! a contingent contract are laid do"n in sections 52,55,56 and 5J o! the Act *a+ Contingency is the ,happening o! an event.3 &here a contract identi!ies happening ?ave clarity a%out the %asic characteristics o! VContingent contractV and VNuasi=contractV so

o! a !uture contingent event, the contract cannot %e en!orced until and unless the event happens I! the happening o! the event %ecomes impossi%le, then the contingent contract is void 4or instance D enters into a contract to %uy Qs car provided Q survives A ?ere Q surviving A or A dying %e!ore Q is the event on "hich the contract is contingent and they cannot %e en!orced until A dies *%+ Contingency is the non=happening o! an event3 &here a contingent contract is made contingent on a non=happening o! an event, it can %e en!orced only "hen its happening %ecomes impossi%le 4or e(ample "here - agrees to pay N a sum o! money i! a particular ship does not return, the contract %ecomes en!orcea%le only i! the ship sin$s so that it cannot return *c+ Contingent on the !uture conduct o! a living person3 A contract "ould cease to %e en!orcea%le i! it is contingent upon the conduct o! a living person "hen that living person does some thing to ma$e the event or conduct as impossi%le o! happening 4or e(ample "here A agrees to pay < a sum o! money i! A marries C C marries E This act o! C has rendered the event o! A marrying C as impossi%leR it is though possi%le i! there is divorce %et"een C and E *d+ Contingent on an impossi%le event3 A contingent agreement to do a thing or not to do a thing i! an impossi%le event happens is void and hence is not o%viously en!orcea%le The situation "ould not change even i! the parties to the agreement are not a"are o! such impossi%ility A agrees to pay < > one la$h i! #un rises in the "est ne(t morning This is an impossi%le event and hence void Ei!!erence %et"een a contingent contract and a "agering contract 1 A "agering agreement is a promise to give money or moneys "orth "ith re!erence to an uncertain event happening or not happening A contingent contract is a contract to do or not to do something "ith re!erence to a collateral event happening or not happening 2 5 6 9 J A "agering agreement consists o! reciprocal promises "hereas a contingent contract may In a "agering contract the uncertain event is the core !actor "hereas in a contingent contract A "agering agreement is essentially contingent in nature "hereas a contingent contract may In a "agering agreement, the contracting parties have no interest in the su%2ect matter A "agering contract is a game, losing and gaining alone matters "hereas it is not so in a not contain reciprocal promises the event is collateral not %e "agering in nature "hereas it is not so in a contingent contract

contingent contract 7 A "agering agreement is void "here as a contingent contract is valid

Fevie" o! !undamentals K K A contract may %e either a%solute or contingent Contingent contract= &here the promisor underta$es to per!orm the contract "hich is

depended on the happeningC non=happenning o! a speci!ied !uture uncertain event, "hich is collateral to the contract Also termed as conditional contract "hich is i! uncertain nature K Contract o! indemnity, guarantee and insurance are contingent contracts, even 7IC to a certain e(tent is contingent contract K All "agering agreements are %asically contingent agreements %ut all the contingent contracts are not "agering agreements 1 66 Nuasi W Contracts /ven in the a%sence o! a contract, certain social relationships give rise to certain speci!ic o%ligations to %e per!ormed %y certain persons These are $no"n as quasi contracts as they create same o%ligations as in the case o! regular contract Nuasi contracts are %ased on principles o! equity, 2ustice and good conscience #alient !eatures o! quasi contracts are3 *a+ In the !irst place, such a right is al"ays a right to money and generally, though not al"ays, to a liquidated sum o! money *%+ *c+ #econdly, it does not arise !rom any agreement o! the parties concerned, %ut it imposed %y Thirdly, it is a right "hich is availa%le not against all the "orld, %ut against a particular the la"R and person or persons only, so that in this respect it resem%les a contractual right 1 69 Types o! Nuasi Contract There are !ive circumstances "hich are identi!ied %y the Act as quasi contracts These !ive circumstances do not result in regular contracts *a+ Claim !or necessaries supplied to persons incapa%le o! contracting3 Any person supplying necessaries o! li!e to persons "ho are incapa%le o! contracting is entitled to claim the price !rom the other persons property #imilarly "here money is paid to such persons !or purchase o! necessaries, reim%ursement can %e claimed

4or e(ample i! A supplies necessaries o! li!e to < a lunatic or to his "i!e or child "hom < is lia%le to protect and maintain, then A can claim the price !rom the property o! < 4or such claim to %e valid A should prove the supplies "ere to the actual requirements o! < and his dependents )o claim !or supplies o! lu(ury articles can %e made I! < has no property A o%viously cannot ma$e his claim *%+ Fight to recover money paid !or another person3 A person "ho has paid a sum o! money "hich another is o%liged to pay, is entitled to %e reim%ursed %y that other person provided the payment has %een made %y him to protect his o"n interest JI ?ere the person "ho ma$es the payment must honestly %elieve that his o"n interest demands payment A@uni <i%i vs Trilo$inathB In a case the plainti!! agreed to purchase certain mills and to save it !rom %eing sold to outsiders paid certain arrears o! municipal dues ?ere the payment made %y the plainti!! "as held to %e recovera%le as he had interest in the property as prospective %uyer *c+ ;%ligation o! person en2oying %ene!its o! non=gratuitous act3 In term o! section 71 o! the Act ,"here a person la"!ully does anything !or another person, or delivers anything to him not intending to do so gratuitously and such other person en2oys the %ene!it thereo!, the latter is %ound to pay compensation to the !ormer in respect o!, or to restore, the thing so done or delivered The a%ove can %e illustrated %y a case la" "here P a government servant "as compulsorily retired %y the government ?e !iled a "rit petition and o%tained an in2unction against the order ?e "as reinstated and "as paid salary %ut "as given no "or$ and in the mean time government "ent on appeal The appeal "as decided in !avour o! the government and P "as directed to return the salary paid to him during the period o! reinstatement A#hyam 7al vs #tate o! H A I F *1IJ8+ 151B *d+ Fesponsi%ility o! !inder o! goods3 In terms o! #ection 71 A person "ho !inds goods %elonging to another and ta$es them into his custody is su%2ect to same responsi%ility as i! he "ere a %ailee Thus a !inder o! lost goods has3 *i+ *ii+ *iii+ to ta$e proper care o! the property as men o! ordinary prudence "ould ta$e no right to appropriate the goods and to restore the goods i! the o"ner is !ound &here - a customer in Es shop puts do"n a %rooch "orn on her coat and !orgets to pic$ it up and one o! Es assistants !inds it and puts it in a dra"er over the "ee$ end ;n @onday, it "as discovered to %e missing E "as held to %e lia%le in the a%sence o! ordinary care "hich a

prudent man "ould have ta$en *e+ 7ia%ility !or money paid or thing delivered %y mista$e or %y coercion3 In terms o! #ection 72 o! the Act, ,a person to "hom money has %een paid or any thing delivered %y mista$e or under coercion, must repay or return it /very $ind o! payment o! money or delivery o! goods !or every type o! mista$e is recovera%le A#hivprasad vs #irish Chandra A I F 1I6I - C 2I7B A payment o! municipal ta( made under mista$en %elie! or %ecause o! mis= understanding o! the terms o! lease can %e recovered !rom municipal authorities The a%ove la" "as a!!irmed %y #upreme Court in cases o! #ales ta( o!!icer vs Panhaiyalal A I F 1I9I # C 859 #imilarly any money paid %y coercion is also recovera%le The "ord coercion is not necessarily governed %y # 19 o! the Act The "ord is interpreted to mean and include oppression, e(tortion, or such other means A#eth Phan2ele$ vs )ational <an$ o! IndiaB In a case "here T "as traveling "ithout tic$et in a tram car and on chec$ing he "as as$ed to pay > 9C= as penalty to compound transaction T !iled a suit against the corporation !or recovery on the ground that it "as e(torted !rom him The suit "as decreed in his !avour ATri$amdas vs <om%ay @unicipal Corporation A I F 1I96B In all the a%ove cases the contractual lia%ility arose "ithout any agreement %et"een the parties Fevie" o! !undamentals K Nuasi contracts C Constructive contracts are the contract presumed %y la" These are the contracts "hich are imposed %y la" and the Act descri%es such contract as ,Certain relations resem%ling those created %y contracts. K Nuasi contract may %e e(ercised under !ollo"ing !ive conditions= =)ecessaries o! li!e supplied to incapa%le person and to his dependents =-erson pays money on %ehal! o! the one, "ho is legally %ound to pay =-erson en2oying the %ene!its o! non=gratuitous act =-erson !inds goods %elonging to other =-erson to "hom money has %een paid or anything delivered %y mista$e or under coercion