1 CONTRACT 2 OFFER AND ACCEPTANCE 3 CONSIDERATION 4 CAPACITY TO CONTRACT 5 FREE CONSENT 6 LEGALITY OF OBJECT 7 CONTINGENT CONTRACT 8 QUASI CONTRACT 9 PERFORMANCE OF CONTRACT 10 DISCHARGE OF CONTRACT 11 REMEDIES FOR BREACH OF CONTRACT

1. INDIAN CONTRACT ACT, 1872
MBA 3RD SEMESTAR
WRITTEN BY:
SIDHARTHA SANKAR PANDA

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CONTENT
CHAPTER
NUMBER
CHAPTER NAME PAGE NO
1 CONTRACT 3-8
2 OFFER AND ACCEPTANCE 9-13
3 CONSIDERATION 14-17
4 CAPACITY TO CONTRACT 18-20
5 FREE CONSENT 21-25
6 LEGALITY OF OBJECT 26-30
7 CONTINGENT CONTRACT 31-32
8 QUASI CONTRACT 33-34
9 PERFORMANCE OF CONTRACT 35-41
10 DISCHARGE OF CONTRACT 42-44
11 REMEDIES FOR BREACH OF
CONTRACT
45-46

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CHAPTER NO: 1:
CONTRACT
QUESTION NO: 1:
1: Define contract? Discuss the essential elements of a valid contract?
2: Law of contract is not the whole of law of agreement nor whole law of obligation.
Discuss enumerating the essentials of a valid contract?
3: The parties to a contract in a essence make the law for themselves?
4: What are the nature and the object of contract?
5: “An agreement enforceable by law is a contract”, discuss the definition and
explain the essentials of a valid contract.
6: “all contracts are agreements, but all agreements are not contracts”, discuss.
ANSWER:
INTRODUCTION:
The law relating to contracts in India is contained in INDIAN CONTRACT ACT, 1872.
The Act was passed by British India and is based on the principles of English
Common Law. It is applicable to all the states of India except the state of Jammu
and Kashmir. It determines the circumstances in which promises made by the
parties to a contract shall be legally binding on them. The Act came into effect
from 1
st
September, 1872 and applies to all contracts in India.
MEANING:
A contract is an agreement made between two (or) more parties which the law will
enforce.
DEFINITION:
 According to section 2(h) of the Indian contract act, 1872. “An agreement
enforceable by law is a contract.”
 According to SALMOND, a contract is “An agreement creating and defining
obligations between the parties”
From the above definitions it is clear that a contract consists of two elements:
1: An agreement.
2: The agreement should be enforceable by law.
1: AGREEMENT
According to Section 2(e) “Every promise and every set of promise forming the
consideration for each other, is an agreement.”
An agreement, therefore, comes into
existence only when one party make a proposal or offer to the other and that other
signifies his assent (i.e. gives his acceptance).
From the above definitions it is clear that for an agreement there must be:
(a)Plurality of Persons
There must be two or more persons to make an agreement because one person
cannot enter into an agreement with himself.
(b)Consensus ad idem
It means that both the parties to an agreement must agree about the subject
matter of the agreement in the same sense and the same time. The term consensus
means identity of minds.
EXAMPLE:
A own two cycles Sohrab and Eagle. A is selling Sohrab cycle to B. B. thinks he
is buying Eagle cycle. There is no consensus ad idem and consequently no contract.

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2: ENFORCEABILITY
Enforceability is the second requirement of contract. An agreement is said to be
enforceable if it is recognized by courts. In order to be enforceable by law, the
agreement must create legal obligations between the parties. If an agreement
does not create legal obligations, it is not contract. ‘All contracts are agreements
but all agreements are not contracts. Agreements are of two types:
(a) Social agreements
(b) Legal agreements
Social agreements are social in nature and do no enjoy the benefits of law. In such
agreements the parties do not intend to create legal relations.
Legal agreements are contracts because they create legal obligations between
the parties. In business agreements it is presumed that the parties intend to create
legal relations so all business agreements are in other words contracts.
EXAMPLE:
(a)An invites B to a dinner. B accepts the invitation but does not attend it A cannot
sue B for damages. It is a social agreement because it does not create legal
obligation. It is not a contract.
(b) A promise to sell his car to B for Rs.2 lac. It is a legal agreement because it
creates legal obligations between the parties. This agreement is also a contract.
Conclusion:
Contract = Agreement + Enforceability by law.
Agreement = Offer + Acceptance.
ESENTIAL ELEMENT OF VALID CONTRACT:
S.L NO ESSENTIAL ELEMENT OF VALID CONTRACT
1 AGREEMENT
2 LEGAL RELATIONSHIP
3 LAWFUL CONSIDERATION
4 CAPACITY OF PARTIES
5 FREE CONSENT
6 LAWFUL OBJECT
7 NOT DECLERED TO BE VOID
8 POSSIBILITY OF PERFORMANCE
9 CERTAINITY
10 NECESSARY LEGAL FORMALITIES
1: AGREEMENT:
There must be an agreement between the parties of a contract. It involves a valid
offer by one party and a valid acceptance by the other party. Agreement is
created by offer and acceptance. Therefore an agreement is = offer +acceptance.
It is only by an agreement a contractual relation is established between the parties.
FOR EXAMPLE: A sends a proposal to B to purchase a property for Rs. 10 lakhs and B
accept the same, then this result into an agreement.
2: LEGAL RELATIONSHIP:
The parties must have intention to create legal relationship among them. Generally,
the agreements of social, domestic and political nature are not a contract. If there
is no such intention to create a legal relationship among the parties, there is no
contract between them.
EXAMPLE: (i) A father promises to pay his son Rs.500 every month as pocket money.
Later, he refuses to pay. The son cannot recover as it is a social agreement and
does not create legal relations.
(ii) A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price,
there is a contract as it creates legal-relationship between them.

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3: LAWFUL CONSIDERATION:
Consideration is an essential element of a valid contract. Consideration means “an
advantage or benefit” moving from one party to other. In other words “something
in return”. The agreement is enforceable only when both the parties give something
and get something in return. Consideration must not be unlawful, immoral or
opposed to the public policy. The consideration must be real and lawful.
EXAMPLE:
(i) A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s promise to
sell the house, and A’s promise to sell the house is the consideration for B’s promise
to pay Rs.10 Lac. These are lawful considerations.
(ii) A promise to obtain for B employment in the public service, and B promise to pay
10,000 rupees to A. the agreement is void, as the consideration for it is unlawful.
4: CAPACITY OF PARTIES:
The parties to a contract should be capable of entering into a valid contract.
Every person is competent to contract if
A: He is the age of majority.
B: He is of sound mind and
C: He is not dis-qualified from contracting by any law.
EXAMPLE:
(i) M, a person of unsound mind, enters into an agreement with S to sell his house for
Rs.2 lac. It is not a valid contract because M is not competent to contract.
(ii) A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid contract because
A is competent to contract.
5: FREE CONSENT:
According to Sec 14, ‘Consent is said to be free when it is not caused by coercion,
undue influence, fraud, misrepresentation or mistake. If consent is not free, then no
valid contract comes into existence. This will discussed in detail subsequently.
EXAMPLE:-
A compels B to enter into a contract on the point of pistol. It is not a valid contract
as the consent of B is not free.
6: LAWFUL OBJECT:
The object of the agreement must be lawful. In other words, it means the object
must not be
(a) Illegal, (b) immoral, (c) opposed to public policy.
If an agreement suffers from any legal flaw, it would not be enforceable by law.
EXAMPLE:-
A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as its object
is unlawful.
7: NOT DECLERED TO BE VOID:
The agreement not expressly declared void or illegal by law u/s 24 to 30 of the act.
FOR EXAMPLE: Agreements in restraint of trade, marriages, legal proceedings, etc..
8: POSSIBILITY OF PERFORMANCE:
The terms of an agreement should be capable of performance. The agreement to
do an act impossible in itself is void and cannot be enforceable.
EXAMPLE: ‘A’ agrees with ‘B’, to put life into B’s dead wife, the agreement is void it
is impossible of performance.

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9: CERTAINITY:
The meaning of the agreement must be certain and not be vague (or) indefinite. If
it is vague (or) indefinite it is not possible to ascertain its meaning.
EXAMPLE:
(i) A promised to sell 20 books to B. It is not clear which books A has promised to sell.
The agreement is void because the terms are not clear.
(ii) A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The
agreement is void because of it uncertainty.
10: NECESSARY LEGAL FORMALITIES:
A contract may be oral or in writing. Where a particular type of contract is required
by law to be in writing and registered, it must comply with necessary formalities as
to writing, registration and attestation. If legal formalities are not carried out then
the contract is not enforceable by law.
EXAMPLE:
(i) A Verbally promises to sell his book to y for Rs.200 it is a valid contract because
the law does not require it to be in writing.
(ii)A verbally promises to sell his house to B it is not a valid contract because the law
requires that the contract of immovable property must be in writing.
QUESTION NO: 2:
1: “contract may be classified according to their validity, formation or
performance” elaborate on this statement by discussing the various types of
contract.
2: explain the different types of contract.
Types of contract:
Contracts can be classified according to their;
1) Validity
2) Formation
3) Performance
TYPES OF CONTRACT
ON THE BASIS OF
VALIDITY
ON THE BASIS OF
FORMATION
ON THE BASIS OF
PERFORMANCE
1: VALID
CONTRACT
2: VOID
CONTRACT
3: VOIDABLE
CONTRACT
4: ILLEGAL
CONTRACT
5:
UNENFORCEABLE
CONTRACT
1: EXPRESS
CONTRACT
2: IMPLIED
CONTRACT
3: QUASI
CONTRACT
1: EXECUTED
CONTRACT
2: EXECUTORY
CONTRACT
3: UNILATERAL
CONTRACT
4: BILATERAL
CONTRACT

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CLASSIFICATION ON THE BASIS OF VALIDITY:
1: VALID CONTRACT:
The contract which is enforceable by law is known as valid contract. Sec.10 of the
Indian Contract act, 1872 explains various legal requirements for a valid contract;
they are: offer and acceptance, capacity of parties, lawful consideration, lawful
agreements, free consent, etc. in short a valid contract is one which posses all the
requirements of legal enforceability.
2: VOID CONTRACT:
It is a contract which has no legal effect. It is unenforceable by law. It is not
enforceable at the option of either party. The void contract is not void ab initio. It is
valid at the time of making it, but it becomes invalid in future. This void contract
cannot be enforced by law.
3: VOIDABLE CONTRACT:
An agreement which is enforceable by law at a option of one or more of the
parties thereto, but not at the option of the others, is voidable contract. In short, a
voidable contract is one which is enforceable by law at the option of one of the
parties. Until it is avoided or cancelled by one of the parties, it is a valid contract.
4: ILLEGAL CONTRACT:
The contract is said to be illegal, if its object is illegal. A contract arising out of an
illegal agreement is illegal ab initio . For example, an agreement to commit murder
is an illegal one.
5: UNENFORCEABLE CONTRACT
It is a contract, which is valid, but not capable of being enforced in a court of law
because of some technical defects.
CLASSIFICATION ON THE BASIS OF FORMATION:
1: Express Contract:
If the terms of a contract are expressly agreed upon (whether by words, spoken or
written) at the time of formation of the contracts, it is called as express contract.
Example: A tells B on telephone that he offers to sell his car for Rs.1,00,000 and B in
reply informs A that he accepts the offer. There is a express contract.
2: Implied Contract:
The contract which is not expressed in written or spoken words, but is to be inferred
from the conduct of the parties is called as implied contract.
Example: There is an implied contract if a person;
i) Gets into a public bus
ii) Takes a cup of coffee in a hotel
iii) Permits a porter to lift luggage
3: Quasi Contract:
A quasi contract is one which resembles a contract but not possess all the essentials
for a valid contract. But quasi contract is valid contract. It is created by law and it
resembles a contract, such a contract does not arise by virtue of any agreement,
express or implied, between the parties but the law infers or recognizes a contract
under certain special circumstances.
For example: 1) Obligation of finder of last goods to return them to true owner
2) Liability of a person to whom money is paid under mistake, to repay it back
ON THE BASIS OF PERFORMANCE:
1: Executed Contract:
Executed contract is one that has been performed. If both parties of a contract
have performed their respective obligations, contract is known as executed
contract.

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For example, A sells a Car to B for Rs. 1,00,000. B pays the price. This is an executed
contract.
2: Executory contract:
An executor contract is one in which both the parties have not yet performed their
obligations either wholly or partly.
For example, A makes an agreement for buying a car from a car dealer and has
made payment. The car has been delivered, but the ownership is yet to be
transferred.
3: Unilateral contract:
If one party has to be fulfilling his obligation and the other has already fulfilled his
obligation, it is known as unilateral contract.
4: Bilateral contract:
If both the parties have fulfilled their obligation hence, it is known as bilateral
contract.

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CHAPTER NO: 2:
OFFER AND ACCEPTANCE
QUESTION NO: 2:
Define offer (OR) proposal? Explain the legal rules as to a valid offer also discuss the
law relating to communication of offer and revocation of offer?
ANSWER:
DEFINITION OF OFFER:
According to section 2(a) of Indian contract act, 1872, defines offer as “When one
person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other person either to such act or
abstinence, he is said to make a proposal.”
EXAMPLE:-
(i) A offer to sell his watch to B for Rs.100 A is making an offer to B.
(ii) A says to B I am willing to sell my car for Rs.3 Lac Are you interested to buy it. “A
makes an offer to B.
LEGAL RULE AND ESSENTIAL ELEMENT OF A VALID OFFER:
S.L NO LEGAL RULE AND ESSENTIAL ELEMENT OF A VALID OFFER
1 Offer must be made between the two parties
2 Offer may be expressed or implied
3 Offer may be specific or general
4 Offer must give rise to legal relationship
5 Terms of an offer must be definite and clear
6 Offer must be different from an invitation to offer
7 Offer must be communicated
8 Offer must be made with a view to obtaining the assent
1: Offer must be made between the two parties:
There must be two (or) more parties to create a valid offer because one person
cannot make a proposal/offer to himself.
2: Offer may be expressed or implied:
An offer may be expressed or may be implied from the conduct of the parties or
circumstances of the case.
Express Offer: An express offer is made by words spoken or written.
Implied Offer - An implied offer is not made by words spoken or written. It is implied
from the conduct of the parties or from the circumstances.
EXAMPLE:
(a) M says to N that he will sell his motorcycle to him for Rs.40,000. It is an express
offer.
(b) A railway coolie carries the luggage of B without being asked to do so B allows
him to do so. It is an implied offer.
3: Offer may be specific or general:
When an offer is made to a specified person or group of persons, it is called specific
offer. Such an offer can be accepted only by the person or persons to whom it is
made. A general offer, on the other hand, is one, which is made to public in
general and it may be accepted by any person who fulfils the conditions
mentioned in it. Both specified and general offers are valid.
EXAMPLE:-
(a) M makes an offer to N to sell his bicycle for Rs.800, it is a specific offer. In this
case, only N can accept it.
(b) A announces in a newspaper a reward of Rs.1,000 for anyone who will return his
lost radio. It is general offer.

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4: Offer must give rise to legal relationship:
The offer must be made in order to create legal relations otherwise, there will be no
agreement. If an offer does into give rise to legal obligations between the parties it
is not a valid offer in the eye of law.
EXAMPLE:-
(a) A invites B to dinner B accept the invitation. It does not create any legal relations,
so there is no agreement.
(b) A offers to sell his watch to B for Rs.200 and B agrees. There is an agreement
because here the parties intend to create legal relations.
5: Terms of an offer must be definite and clear:
An offer must be definite and clear, if the terms of an offer are not definite and
clear, it cannot be called a valid offer. If such offer is accepted it cannot create a
binding contract.
EXAMPLE:
A has two motorcycles. He offers B to sell one motorcycle for Rs.27,000. It is not a
valid offer because it is not clear that which motor cycle A wanted to sell.
6: Offer must be different from an invitation to offer:
An offer is different from an invitation to offer. It is also called invitation to treat or
invitation to receive offer. An invitation to offer looks like offer but legally it is not
offer.
In the case of an invitation to
offer, the person sending out the invitation does not make an offer but only invites
the other party to make an offer. His object is to inform that he is willing to deal with
anybody who after getting such information is willing to open negotiations with him.
Such invitations for offers are not offers according to law and so cannot become
agreement by acceptance.
EXAMPLE:
(a) Quotations, Catalogues of prices, display of goods with prices issue of
prospectus by companies are examples of invitation to offer.
(b) Display of goods in an auction sale is not an offer rather it is an invitation to offer.
The offer will come from the buyer in the form of bids.
7: Offer must be communicated:
An offer must be communicated to the person to whom it is made. A person can
accept the offer only when he knows about it. If he does not know it, he cannot
accept it.
EXAMPLES:
A without knowing that a reward has been offered for the arrest of a particular
criminal, catches the criminal and informs the police. A cannot recover the reward
as he was not aware of it.
8: Offer must be made with a view to obtaining the assent:
A offer to do (or) not to do something must be made with a view to obtaining the
assent of the other party addressed and it should not made merly with a view to
disclosing the intention of making an offer.
QUESTION NO: 3:
1: When does an offer comes to an end?
2: When an offer does may be revoked (or) lapses?
3: Revocation of offer otherwise than by communication?

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ANSWER:
Revocation (or) lapses of offer:
Section 16, of the Indian contract act, 1872 deals with various modes of revocation
of offer. According to it, an offer is revoked/lapses (or) comes to an end under
following circumstances.
1 By communication of notice
2 By lapse of reasonable time
3 By lapse of reasonable time
4 By non-fulfillment of some conditions
5 By death (or) insanity of the offeror
6 By a counter offer
7 By change in law
8 An offer is not accepted according to the prescribed (or) usual mode
9 By death (or) insanity of the offeree/acceptor
10 By destruction of the subject matter
1: By communication of notice:
The offeror can revoke his offer at any time by sending a notice of revocation to
the offeree, before its acceptance. The offeror can reject the offer before its
acceptance even though the period for which the offer was kept open has not yet
expired.
EXAMPLE:
A, the offeror at an auction sale makes the highest bid. But he has the right to
withdraw (revoke) the bid (offer) is revoked before acceptance.
2: By lapse of reasonable time:
An offer will revoke if it is not accepted within the prescribed/reasonable time. If
however, no time is prescribed it lapses by the expiry of a reasonable time.
EXAMPLE:
On June 8th ‘M’ offered to take shares in ‘R’ Company. He received a letter of
acceptance on November 23rd. he refused to take shares. ‘M’ was entitled to
refuse his offer has lapsed as the reasonable period which it could be accepted
and elapsed.
3: By non-fulfillment of some conditions:
When offeror has prescribed some conditions to be fulfilled and offeree/ acceptor
fails to fulfill the conditions required to acceptance. In such a case offer will be
revoked.
EXAMPLE:
A offer to sell his scooter to B for Rs.48,000 if B gets admission in medical college. If B
fails to get admission the offer will stand revoked as he fails to fulfill the conditions.
4: By death (or) insanity of the offeror:
An offer lapses by the death or insanity of the offeror, if the fact of his death or
insanity comes to the notice of the acceptor before acceptance.
5: By a counter offer:
An offer may be revoked by the offeree by making the counter offer. An offer
comes to an end when the offeree makes a counter offer.
EXAMPLE:
A offers to sell his house to B for Rs.1 Lac B offers Rs.80,000. A refuses. Finally, B offers
Rs.1 lac but A refuses to sell. There is no contract because B by offering Rs.80,000
has already rejected the offer.

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6: By change in law:
An offer comes to an end if the law is changed so as to make the contract
contemplated by the offer illegal (or) incapable of performance.
7: An offer is not accepted according to the prescribed (or) usual mode:
If the offer is not accepted according to the prescribed (or) usual mode, provides
offeror gives notice to the offeree within a reasonable time that the offer is not
accepted according to the prescribed/usual mode. If the offeror keeps quite, he is
deemed to have accepted the offer.
8) By death (or) insanity of the offeree/acceptor.
9) By destruction of the subject matter.
An offer lapses if the thing which is the subject matter of the offer destroys before its
acceptance by the other party.
EXAMPLE:
An offer to sell his horse to B the horse dies before the acceptance of offer by B the
offer terminates.
QUESTION NO: 4:
1: “An acceptance to be effective must be communicated to the offeror”. Are there
any exceptions to this rule?
2: Define acceptance? Explain the rules regarding a valid acceptance?
ANSWER:
Definition of acceptance
According to section 2(b) “When the person to whom the proposal is made,
signifies his assent there to, the proposal is said to be accepted.”
Legal rules for acceptance
1 Acceptance must be absolute and unconditional
2 Acceptance must be communicated
3 Acceptance must be according to mode prescribed or usual mode
4 Time of Acceptance
5 Acceptance may be express or implied
6 Acceptance must be made before offer is revoked
7 Acceptance must be made by the offeree
8 Acceptance is not implied from silence of the party
1: Acceptance must be absolute and unconditional:
Partial and conditional or qualified acceptance will not be a valid acceptance.
That is the acceptor either should accept the item of the offer in Toto or should
reject it in Toto. There should not be any variation in terms while accepting the
proposal.
Example: A offers to sell his house to B for Rs. two lakhs. B accepts the offer and
promises to pay the price in four installments. This is not pay the acceptance as the
acceptance is with variation in the terms of the offer.
2: Acceptance must be communicated:
Acceptance to be legally effective must be communicated and brought to the
knowledge of the offeror. Even if the acceptor has accepted the offer but if it is not
communicated properly, it would not result into an agreement.
EXAMPLE:
A proposes by letter to purchase B’s house. B expresses his intention to sell it to A but
does not send a reply to him. The house is sold to C despite B’s intention. A has no
legal remedy against B.

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3: Acceptance must be according to mode prescribed or usual mode:
Acceptance must be communicated in the mode of prescribed, or in the usual
mode where the mode of communication of acceptance is not specified in the
offer.
4: Time of Acceptance:
Acceptance must be made within the time allowed. When no time is specified,
acceptance must be given within reasonable period of time.
5: Acceptance may be express or implied:
When an acceptance is made by words spoken or written, it is an express
acceptance. If it is accepted by conduct, it is an implied acceptance. For
example when a person goes to a Restaurant and has some food, he impliedly
accepts to pay for it.
EXAMPLE:
A wrote a letter to B to sell his cycle for Rs.2,000. B accepted his offer and sent a
letter of acceptance to A. It is an express acceptance.
6: Acceptance must be made before offer is revoked:
The acceptance of an offer must be done before the offer lapses or is withdrawn or
cancelled. Once an offer is dead due to any reason it is dead for ever.
7: Acceptance must be made by the offeree:
Acceptance must be made only by the person to whom the offer is made and not
by others.
8: Acceptance is not implied from silence of the party:
Generally, silence on the part of offeree regarding the offer in no case may amount
to acceptance.

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CHAPTER NO: 3:
CONSIDERATION
QUESTION NO: 5:
1: Define consideration? What are the rules as to consideration?
2: “a contract without consideration is void”. Explain.
3: “no consideration-no contract” discuss. Give essential elements of a valid
consideration.
ANSWER:
Definition of acceptance:
Consideration is a technical term and it means “something in return”. When a party
of an agreement to do something. They must get something in return. This
“something in return” is known as consideration.
According to section 2(d), “When at the desire of the promisor, the promisee or any
other person has done or abstained from doing something or does or abstains from
doing something or promises to do or abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.”
LEGAL RULE OF CONSIDERATION:
1 Consideration must move at the desire of the promisor
2 Consideration may move from the promisee or any other person
3 Consideration may be past, present or future
4 Consideration need not be adequate
5 Consideration must be real and not illusory
6 Consideration must be lawful
1: Consideration must move at the desire of the promisor:
It is essential that promisee should perform his part of the promise only at the desire
of the promisor. The desire of the promisor may be express or implied.
For example, ’A’ buys a book for his friend ‘B’. Later on ‘B’ promises to pay Rs. 75 to
‘A’. Since ‘A’ has bought the book voluntarily without the desire of ‘B’, it cannot be
valid consideration for the promise of ‘B’.
2: Consideration may move from the promisee or any other person:
According to Indian law, the consideration may proceed either from the promisee
or any other person. Under the English law, consideration must move from the
promisee.
EXAMPLE:
Mr. Shah agrees to sell his "house for Rs. Twenty lac to Mr. Amit. Now Mr. Amit
promises to pay the such amount is the consideration for Mr. Shah's promise.
3: Consideration may be past, present or future:
If the promisor had received the consideration before the date of the promise, it is
known as past consideration. If the promisor receives consideration simultaneously
with his promise, it is known as present consideration. When the consideration on
both sides is to move at a future date, it is called future consideration. However,
according to English Mercantile law, consideration may be present or future only.
EXAMPLE:
i. Past Example :- Mr. Nash lost his car and Mr. Frank a finder delivers it to him. Mr.
Frank can not demand payment of his services due to the past consideration.
ii. Present Example :- Mr. Ali sells a house to Miss Sana. She pays its price
immediately. It is called present consideration.
iii. Future Example :- Mr. Shah promises to deliver a shop to Mr. Khan after a one

15. Page | 15
month for Rs. 1 lac upon the promise of Mr. Khan to pay the agreed price at the
time of delivery. It is called future consideration.
4: Consideration need not be adequate:
According to Indian contract Act, it is not necessary that the value of promise
should be equal to the value of consideration. Even if the value of consideration is
less than the value of promise, the contract is valid.
Example :- Mr. Kullo agrees to sell his house for Rs. 25 lac. If the consent of Mr. Kullo
is free then agreement is valid contract, without consideration.
5: Consideration must be real and not illusory:
Consideration must have some value in the eyes of law. It must not be illusory,
fictitious, fraudulent and uncertain.
6: Consideration must be lawful:
Consideration is said to be unlawful if
1. If it is forbidden by law.
2. It is fraudulent
3. It involves or implies injury to the person or property of another person.
4. It is regarded by court as criminal
5. It is regarded by the court as being against the public policy.
QUESTION NO:6:
1: Explain the exceptions for a valid consideration.
2: Explain the exceptions to the rule “no consideration no contract”.
3: “A contract not supported by consideration is unenforceable” discuss what are it
exceptions”.
4: “A contract without consideration is void”- Discuss its exceptions?
5: “Insufficiency of consideration immaterial; but an agreement without
consideration is void”. Comment.
ANSWER:
EXCEPTIONS TO THE RULE “NO CONSIDERATION NO CONTRACT”
Consideration being one of the essential elements of a valid contract the general rule
is that “an agreement made without consideration is void. But there are a few
exceptions to the rule, where an agreement without consideration will be perfectly valid
and binding. These exceptions are as follows:
1 Agreement made on account of natural love and affection [Sec. 25 (1)]
2 Agreement to compensate for past voluntary service (Sec.25 (2)]
3 Agreement to pay a time-barred debt (Sec. 25 (3)]
4 Agency [Sec. 185]
5 Completed gifts
6 charitable subscription
1: Agreement made on account of natural love and affection [Sec. 25 (1)]:
An agreement made without consideration is enforceable. If it is
(i) Expressed in writing
(ii) Registered under the law for the time being in force for the registration of
documents
(iii) Is made on account of natural love and affection
(iv) Between parties standing in a near relation to each other.
EXAMPLE:
Y, out of natural love and affection, promises to give his son L, rs.10,000. Y puts his
promise to l in writing and registers it. This is a valid contract.

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2: Agreement to compensate for past voluntary service (Sec.25 (2)].
If a person has already voluntarily done something for the promisor and the
promisor agrees to compensate wholly or in part, the agreement is valid even
though it is without consideration.
EXAMPLE:
‘A’ find ‘B’s purse and hand it over to him. B, in return promise to give A Rs. 50. It is a
valid contract.
3: Agreement to pay a time-barred debt (Sec. 25 (3)].
A promise by a debtor to pay a time barred debt is enforceable provided it is
made in writing and is signed by the debtor or by his agent authorized in that
behalf. An oral promise to pay a time barred debt is unenforceable
4: Agency: -
According to sec 185 of the Indian Contract Act, no consideration is necessary to
create an agency.
5: Completed gifts: -
Gift once made cannot be recovered on the ground of absence of consideration.
6: charitable subscription:
Charitable subscriptions are binding on the parties even in the absence of
consideration.
QUESTION NO: 7:
“A stranger to a contract cannot sue”, discuss. Are they any exceptions to this rule?
Explain.
ANSWER:
A stranger to a contract/ Privity of contract
A stranger to a contract is a person who is not a party to the Contract. Such a party
neither makes nor accepts any offer. Privity of contract states that the contract
confers right and obligations on contracting parties only. Therefore stranger to a
contract cannot sue on the contract.
A stranger to consideration/ Privity of consideration:
When consideration is furnished not by the promisee but by a third person, the
promise becomes a stranger to consideration. Under the Indian contract Act,
consideration may move from the promisee or any other persons. So in India, a
consideration made by the stranger is lawful and enforceable.
Exceptions to the rule that a stranger to a contract cannot sue:
1 Beneficiary of a trust
2 Contracts through an agent
3 Marriage settlement, partition or other family arrangement
4 Estoppels to acknowledgment
5 Charges created on immovable property
1: Beneficiary of a trust: -
Trust is an arrangement whereby some property is handed over to trustee by the
owner. This property is is to be managed by the trust for the benefit of the party
known as beneficiary. Here the beneficiary can sue to enforce his rights under the
trust, though he is not a party to a contract.
2: Contracts through an agent: -
Contracts which are entered into through an agent can be enforced by his
principal. Here the principal can file suit against third party or can be sued by third
party.
3: Marriage settlement, partition or other family arrangement: -
If an agreement has made for the above purpose, in such agreement provision
may be made for the benefit of a particular member. Such person, who is
beneficiary in the agreement, can maintain a suit.

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4: Estoppels to acknowledgment:-
When a party admits liability in a contract to third party, then if he denies it on any
ground, he will be stopped from doing so. His liability would continue towards third
party.
5: Charges created on immovable property: -
Agreement creating charge on immovable property in favour of third party for his
benefit can be enforced by third party.

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CHAPTER NO: 4:
CAPACITY TO CONTRACT
QUESTION NO: 8:
What do you mean by “capacity to contract”? Explain about incompetent persons
to contract.
ANSWER:
CAPACITY TO CONTRACT (SEC 11)
Capacity of party is an essential element of a valid contract; capacity means
competence of parties to enter into contract.
According to sec11, every person is competent to contract who,
1: he has attained the age of majority
2: he is of sound mind, and
3: he is not disqualified by any law from contracting
From the above provisions of the section it means the following types of persons are
not competent to contract:
(a) A person who has not attained the age of majority, i.e. minor.
(b) A person of unsound mind
(c) A person who is disqualified from contracting by some law.
QUESTION NO:9:
1: discuss with examples the law relating to validity of contracts by minors.
2: discuss with suitable illustrations the law relating to validity of contracts with or by
minors.
3: Explain the term ‘MINOR’? Explain the legal rules regarding agreement by a
minor?
4: What is the regal effect of a minor’s misrepresentation of his age while entering
into an agreement?
ANSWER:
Definition of minor:
According to section 3, of the Indian majority act, 1875 ‘A minor is a person who
has not completed “18” years of age. But if a minor is under the care and custody
of the court and a guardian is appointed by the court for the minor, then the minor
becomes major only on the completion of the age of 21 years.
Law regarding Minor’s Agreement:-
1 An agreement with a minor is void ab initio
2 Minor can be a promisee or beneficiary
3 Ratification on attaining the majority is not allowed
4 Minor is not bound to return the benefits received
5 The principle of estopel is not applicable to minor
6 A minor is liable for necessaries supplied
7 Minor can be an agent
8 He cannot be adjudged insolvent
9 Minor- as partner
1: An agreement with a minor is void ab initio:
A minor does not have the contractual capacity and when he makes agreements;
such agreements are void and cannot be enforced in the court of law.
EXAMPLES:
A. a minor sold his shop to B. The amount was paid to A but the sale deed could not
be registered as A was minor. On a suit by B, it was held that as, A was minor, so
agreement was void ab-initio and the amount was not recoverable.

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2: Minor can be a promisee or beneficiary:
A minor cannot be stopped from getting benefits in an agreement. If in a contract,
minor is a beneficiary or suffered loss or he is a promisee, he can demand the
enforcement of agreement.
3: Ratification on attaining the majority is not allowed:
A minor cannot ratify a promise entered into during his minority, after attaining
majority.
4: Minor is not bound to return the benefits received:
If a minor retained any benefit under the agreement, he is not liable for repay or
compensate the same. The reason is that the original contract is void in the
beginning itself.
5: The principle of estopel is not applicable to minor:
The general principle of estopel is not applicable to a minor.
6: A minor is liable for necessaries supplied:
According to sec 68, “if a person, incapable of entering into a contract or any one
whom he is legally bound too support, is supplied by another person with
necessaries suited to his condition in his life, the person who has furnished such
supplies, is entitled to be reimbursed from the property of such incapable person.
7: Minor can be an agent:
A minor can act as an agent and bind his principal by his acts.
8: He cannot be adjudged insolvent:
A minor cannot adjudged insolvent as he is not competent to enter into contracts
for debts.
9: Minor- as partner:
A minor cannot be a partner, but he may be admitted to the benefit of a
partnership. His liabilities are limited to the extent of his interest in the partnership.
QUESTION NO: 10:
Enlist different persons of unsound mind who cannot enter into contract.
ANSWER:
According to section 12 of the Indian contract Act, 1872 “A person is said to be of
sound mind for the purpose of making a contract if, at the time when he makes it,
he is capable of understanding it and of forming a rational judgment as to its
effects upon his interests”.
Soundness of mind of a person depends on two facts:
1. Ability to understand the contract at the time of making.
2. Ability to form a rational judgment about the effect of the contract on his interest.
Types of persons of unsound mind:
1. Idiots: A person who has completely lost his mental powers and incapable of
forming a rational judgment is called an idiot. All agreements other than of
necessaries of life, with idiots are absolutely void.
2. Lunatic: A lunatic person is a person who suffers a serious mental disorder due to
some mental strain or mental shock or any highly tragic event. A lunatic is not liable
for agreements entered into during the period of his madness.
3. Drunken persons: A drunken person suffers from temporary incapacity to
contract. An agreement by a drunken person is void because during his
drunkenness he cannot understand the business and its implications.
QUESTION NO:11:
1: Contract by disqualified person.
2: Person expressly disqualified (other person).
3: enlist the persons who are disqualified by law to contract.

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ANSWER:
PERSONS DISQUALIFIED BY OTHER LAWS
Alien enemies Convicts
Foreign sovereigns, and
ambassadors
Corporations
Insolvents Married women
1. Alien enemies: A person who is not a citizen of India is called alien. The following
rules will apply in respect of an alien enemy:
a. No contract can be made with an alien enemy during the subsistence of war
b. Performance of the contract made before the outbreak of war will be
suspended during the course of war.
2. Foreign sovereigns, and ambassadors: In the case of Ambassadors and foreign
sovereigns, according to sec 86 of the civil procedures, previous sanction of the
central government is to be obtained .
3. Insolvents: When a debtor is adjudged as insolvent his property vests in the official
Receiver and thereby he cannot enter into a contract. This disqualification is
automatically removed after he is discharged.
4. Convicts: A convict when undergoing imprisonment is incapable of entering in to
a contract. When the period of sentence expires, the incapacity to contract
disappears.
5. Corporations: A company or corporation can enter into contracts only through its
agents, such as Board of Directors, Managing Directors etc in accordance with its
Memorandum of Associations. Any contract beyond the Memorandum is not valid.
6. Married women: They are competent to enter into a contract with respect to
their separate properties. But she cannot enter into contracts with respect to their
husbands’ property.

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CHAPTER NO: 5:
FREE CONSENT
QUESTION NO: 12:
What is free consent? Explain the factors affecting free consent?
ANSWER:
FREE CONSENT (SEC 13)
According to Sec13 of the Contract Act defined consent as, “two or more persons
are said to consent when they agree upon the same thing in the same sense.”
Without free consent of the parties, an agreement does not acquire legal sanctity
and consequences.
Section 14 of this act states that, ‘Consent is said to be free when it is not caused by,
1. Coercion
2. Undue influence
3. Mis representation
4. Fraud
5. Mistake
In the first four cases, the contract is voidable, but in the last case, the contract is
void ab initio.
QUESTION NO: 13:
Define coercion and undue influence. What are the effects of coercion and undue
influence?
ANSWER:
Meaning of coercion:
Section 15 of the Contract Act, defines coercion as follows:
“Coercion is the committing or threatening to commit, any act, forbidden by the
Pakistan Code, or the unlawful detaining to detain, any property, to the prejudice
of any person whatever, with the intention of causing any person to enter into an
agreement.”
When a person is compelled to enter into a
contract by the use of force by the other party or under a threat, “coercion” is said
to be employed. Coercion includes fear, physical compulsion and menace to
goods.
Example: -
A threatens to kill B if he does not lend Rs. 1000 to C. B agrees to lend the amount to
C. The agreement is entered into under coercion.
It includes:
a. The committing of any act forbidden by the Indian Penal Code.
b. The unlawful detention of any property of another person.
c. Threatening to detain the property of another person.
Meaning of undue influence:
Section 16(1) of the Contract Act defines undue influence as follows:-
“A contract is said to be induced by undue influence, where the relations subsisting
between the parties are such that one of the parries is in a position to dominate the
will of the other and uses that position to obtain an unfair advantage over the
other”.
Sometimes a party is compelled to enter into an
agreement against his will as a result of unfair persuasion by the other party. This
happens when a special kinds of relationship exists between the parties such that
one party is in a position to exercise undue influence over the other.

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EXAMPLE: A, having advanced money to his son B, obtains from him, by misuse of
parental influence, a bond for a greater amount than the sum advanced. A
obtains unfair advantages.
Effect of Undue influence: - An agreement caused by undue influence shall be
voidable at the option of the party whose consent has been so obtained. In such
cases the court may either set aside the contract absolutely or it may direct the
person, who wants to avoid the contract to refund the benefit which he actually
obtained.
DISTINCTION BETWEEN COERCION AND UNDUE INFLUENCE
BASIS COERCION UNDUE INFLUENCE
Nature Coercion is a physical threat
either to property or person.
Undue influence is a mental or
moral threat
Illegal &
Unfair
Threatening to do an illegal act. In undue influence the act may
not be illegal, it may only be
unfair.
Parties Coercion may be exercised by
Or Against the party to the
agreement it may also be
exercised by or Against some
third party.
Undue influence must be
exercised by or against the
party t the agreement.
Relationship For concern no specific
relationship between the
parties is necessary.
For undue influence there must
be a specific relationship
between the parties.
Effect In coercion the contract is
voidable at the option of
aggrieved party.
In undue influence the
contract is either voidable or
the court may set aside it or
enforce it in a modified form.
QUESTION NO: 14:
Explain about misrepresentation.
ANSWER:
Misrepresentation is a false statement which the person making it honestly believes
to be true or which he does not know to be false. It also includes non-disclosure of a
material fact or facts without any intent to deceive the other party.
A representation, when wrongly made, either
innocently or intentionally, is a misrepresentation.
Misrepresentation may be-
1. An innocent or unintentional misrepresentation, or
2. An intentional, deliberate or willful misrepresentation with intent to deceive or
defraud the other party.
Example: - A while selling his mare to B, tells him that the mare is thoroughly sound.
A genuinely believes the mare to be sound although he has no sufficient ground for
the belief. Later on B finds the mare to be unsound. The representation made by A
is a misrepresentation.

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Effects of Misrepresentation:
When consent of the party is caused by the misrepresentation made by another
party, the contract is voidable at the option of the aggrieved party whose consent
was caused by misrepresentation. He has the following rights:
1. May avoid or rescind the contract
2. May insist on the misrepresentation being made good or
3. May rely upon the misrepresentation as a defence to an action or the contract.
QUESTION NO: 15:
What is fraud? Explain the consequence of fraud.
ANSWER:
Meaning of fraud
When a wrong representation is made by a party with the intention to deceive the
other party or to cause him to enter in to a contract, it is said to be fraud.
According to Sec.17, Fraud includes any of the following acts,
a. A false suggestion as to a fact known to be a false
b. A promise made without any intention of performing it.
c. Doing any act filled with deceive
d. The active concealment of fact with knowledge of the fact, and
e. Doing any such act as the law specially declares to be fraudulent.
Example: - A sells, by auction, to B a horse which A knows to be unsound. A says
nothing to b about horse’s unsoundness. This is not fraud in A.
Effect and consequence of fraud:
If the consent to an agreement is caused by fraud, the contract is voidable at the
option of the party, whose consent was so caused. In case of fraud, the aggrieved
party has the following remedies:-
a. He can cancel the contract within a reasonable time.
b. He can sue for damage
c. He can insist on specific performance of the contract on the condition that he
shall be put in the position in which he would have been if the representation made
had been true.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION
BASIS FRAUD MISREPRESENTATION
Intention In case of fraud, the party
makes a False statement with
an intention to deceive the
other party.
In case of misrepresentation there
is no intention to deceive the other
party.
Belief In case of fraud, the person
making the suggestion does not
believe it to be true.
In case of misrepresentation the
person making the suggestion
believes it to be true.
Damages In fraud, the aggrieved part can
Claim damages in addition to
the right of avoiding the
contract.
In misrepresentation entitles the
party to avoid contract and there
can be no suit for damages.
Offence Fraud may amount to an
offence of cheating. It is a
criminal act.
Misrepresentation does not
amount to a Offence of cheating.
It is not a criminal act.
Truth In case of fraud, the aggrieved
party can avoid contract even if
it had the means of discover the
truth with Ordinary diligence.
In case of misrepresentation
aggrieved party cannot avoid the
count if it had means to discover
the truth ordinary diligence.

24. Page | 24
QUESTION NO: 16:
Discuss the law relating to the effect of mistake on contracts.
ANSWER:
A mistake means that parties intending to do nothing have by intentional error
done something else. If the agreement is made under a mistake, it means that
there is no consent and when the consent is nullified by such mistake, and then the
agreement has no legal effect.
Classification of Mistake:
1. Mistake of fact and
2. Mistake of law
MISTAKE OF FACT:
Mistake of fact may be:
1: bilateral mistake
2: unilateral mistake
1: bilateral mistake
When both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, there is a bilateral mistake.
i. Mistake as to the subject –matter:-
Where both the parties to an agreement are working under a mistake relating to
the subject matter, the agreement is void. Mistake as to the subject-matter covers
the following cases:
ii. Mistake as to the existence of the subject-matter: -
If both the parties believe the subject matter of the contract to be in existence,
which in fact at the time of the contract is non-existent, the contract is void.
Example: - A agrees to buy from B a certain house. It turns out that the house was
dead at the time of the bargain, though, neither party was aware of the fact. The
agreement is void.
iii. Mistake as to the identity of the subject-matter: -
It usually arises where one party intends to deal in one thing and the other intends
to deal in another.
Example: - W agreed to buy from R cargo of cotton “to arrive ex-peerless from
Bombay”. There were two ships of that name sailing. From Bombay”. There were
two ships of that name sailing. From Bombay, one sailing in October and the other
in December. W meant the former ship but R meant the later. Held, there was a
mutual or a bilateral mistake and there was no contract.
iv. Mistakes as to the quality of the subject-matter:
If the subject-matter is something essentially different form what the parties thought
it to be, the agreement is void.
Example: - table napkins were sold at an auction by a description “with the crest of
Charles I and the authentic property of that monarch”. In fact the napkins were
Georgian. Held, the agreement was void as there was a mistake as to the quality of
the subject matter.
v. Mistake as to the quantity of the subject-matter: -
If both the parties are working under a mistake as to the quantity of the subject-
matter, the agreement is void.
Example: - A silver bar was sold under a mistake as to its weight; There was a
difference in value between the weight of the bar as it was and as it was supposed
to be. Held, the agreement was void.
vi. Mistake as to the title to the subject-matter: -
Example: - a person took a lease of fishery which, unknown to either party, already
belonged to him. Held, the lease was void.
vii. Mistake as to the price of the subject-matter:-

25. Page | 25
Example: - C wrote to W offering to sell certain property for $ 1250. He earlier
declines an offer from w to buy the same property for $ 2000. W who knew that this
offer of $ 1250 was a mistake for 2250, immediately accepted the offer. Held, W
knew perfectly well that the offer was made by mistake hence the contract could
not be enforced.
2: unilateral mistake
When in a contract only one of the parties is mistaken regarding the subjet-matter
or in expressing or understanding the terms or the legal effect of the agreement,
the mistake is a unilateral mistake.
Example: - A buys an article thinking that it is worth Rs. 1000 when it worth only Rs 50.
A cannot subsequently avoid the contract.
MISTAKE OF LAW:
Mistake of law may be of two types:
1. Mistake of Indian Law
2. Mistake of foreign law
1. Mistake of Indian law:
Example: - A and B enter into a contract on the erroneous belief that a particular
bebt is barred by the Indian Law of Limitation. This contact is not voidable.
2. Mistake of foreign law:
Such a mistake is treated as mistake of fact and the agreement in such a case is
void. (Sce-21)

26. Page | 26
CHAPTER NO: 6:
LEGALITY OF OBJECT
QUESTION NO: 17:
Under what circumstances is the object or consideration of contract deemed
unlawful? Illustrate with example.
ANSWER:
LEGALITY OF OBJECT:
The contract to be legally valid must contain lawful object. According to section 10
of the act, “all agreements are contract if they are for lawful consideration and
with a lawful object. Lawful object means, intention to do something permissible
within the provisions of law”.
Example: A in consideration of Rs. 10 lac from B agrees to Kill C. The object of this
agreement is killing, which is illegal and punishable under Indian Penal Code.
UNLAWFUL CONSIDERATION AND UNLAWFUL OBJECT:
An agreement will not be enforceable if its objects (or) the consideration are
unlawful. According to section 23, of the Indian contract Act, 1872. The
consideration and objects are unlawful in the following cases:
S.L NO UNLAWFUL CONSIDERATION AND UNLAWFUL OBJECT
1 It is forbidden by law
2 It defeats the provisions of any other law
3 It is fraudulent
4 It involves an injury to a person or property of other
5 It is Immoral
6 It is against public policy
1: It is forbidden by law:-
If the object or consideration of an agreement is forbidden by law, the agreement
is void.
Example:
A agrees to sell certain goods to B after knowing very well the goods are to be
smuggled out of the country. Here the object is forbidden by law.
2: It defeats the provisions of any other law:-
Where the enforcement of a particular is of such a nature that it would defeat the
provisions of any statutory law which is in force, the agreement is void.
Example:
An agreement between husband and wife to live separately is invalid as being
opposed to Hindu law.
3. It is fraudulent: -
Fraud is punishable under the provisions of the law. Thus an agreement made with
an object of defrauding or deceiving another will be void.
Example:
‘A’, ‘B’, ‘C’ enters into an agreement for division among them of gains acquired (or)
to be acquired, by them by fraud. The agreement is void, as its object is unlawful.
4. It involves an injury to a person or property of other:-
Agreements made with an object of putting some person in to criminal or wrongful
harm or damaging his property or reputation is void.

27. Page | 27
Example: Ram Saroop (vs) Bansi Mandar (1915):
Facts: “B” borrowed Rs.100 from “L’ and executed a bond promising to work for “L”
without pay for a period of two years. In case of default, “B” was to pay interest (at
a very exorbitant rate) and the principal amount at once.
Judgment: The contract was void as it involves injury to the person of “B”.
5. It is Immoral: -
If the object of an agreement is considered as immoral in the opinion of the court,
such agreement will be void on account of unlawful object.
Example: Pearce (vs) Brooks (1866):
Facts: A firm of coach-builders hired out a carriage to a prostitute, knowing that it
was to be used by prostitute to attract men.
Judgment: The coach-builders could not recover the hire as the agreement was
unlawful.
6. It is against public policy: -
Any agreement which goes against public policy and adversely affect public
welfare public decency and public interest will be void. The court has declared the
following agreements oppose to public policy.
a. Trading with alien enemy
b. Trafficking in public office
c. Interfering with course of justice
d. Marriage brokerage agreements
e. Agreement creating interest against professional duty.
f. Agreement in restraint of parental duty.
g. Agreement in restraint of Trade
QUESTION NO: 18:
What is unlawful and illegal agreement? Explain the effects of illegal agreement.
ANSWER:
MEANING OF UNLAWFUL AND ILLEGAL AGREEMENTS:
An unlawful agreement is one which, like a void agreement and is not enforceable
by law. It is destitute (lacking) of legal effects altogether. If affects only the
immediate parties and has no further consequences.
An illegal agreement, on the other hand, is not only
void as between the immediate parties but has this further effect that the collateral
transactions to it also become tainted (infect) with illegality.
Thus, ‘every illegal agreement is unlawful, but every unlawful agreement is not
necessarily illegal’. It is sometimes difficult to decide as to weather an act is illegal
(or) unlawful because, as many of the illegal and the unlawful acts lie on the
borderline. It may, however, be observed that illegal acts are those which are
opposed to public morals and unlawful acts are those which are less rigorous in
effect and involves a ‘non-criminal breach of law’. These acts do not effect public
morals (nor) do they results in the commission of crime.
Effects of illegality: The general rule of law is that no action is allowed on an illegal
and unlawful agreement. This is based on the following two maxims:-
1. No action arises from a base cause. The effect of this is that the law discourages
people from entering into illegal agreements which arise from base. (Ex-turpi causa
non oritur action).
2. In cases of equal guilt, the defendant is in a better position. (In pari delicto, potior
est condition defendentis).

28. Page | 28
Example: ‘A’ promises to pay ‘B’ Rs.500/- if he beats ‘T’. If ‘B’ beats ‘T’, he cannot
recover the amount from ‘A’. (Or) If ‘A’ has already paid the amount and ‘B’ does
not beat ‘T’, ‘A’ cannot recover the amount.
If an agreement is illegal, the law will help neither party to the agreement. This
means that, as a result of refusal of the court, to help plaintiff in recovering the
amount, (i.e.., the defendant who is equally guilty stands to gain). The court is, in
fact, neutral (opposite) in such cases. The court allows the defendant to have that
advantage, not because it approves of his conduct, but because it is not prepared
to grant any relief on the basis of illegal agreement. As a result of the neutrality the
defendant stands to gain.
The effects of illegality may now be summed up as under:
1. The collateral transactions to an illegal agreement become tainted (infect) with
illegality and treated as illegal even though they would have lawful by themselves.
2. No action can be taken (a) For the recovery of money paid. (Or) property
transferred under illegal agreement, and (b) For the breach of an illegal agreement.
3. In cases of equal guilt on an illegal agreement, the position of defendant is better
than that of the plaintiff (i.e.., innocent party) may, however, sue to recover money
paid (or) property transferred under following circumstances:
(a) Where he is not equally guilty (in pari delicto) with the defendant.
Example: where he has induced to enter into an agreement by fraud, undue
influence (or) coercion.
(b) Where he does not have to rely on the illegal transaction.
(c) Where a substantial part of the illegal transaction has not been
Carried out, and he is truly and genuinely repentant.
QUESTION NO: 19:
1: Explain the agreements opposed to public policy.
2: Discuss the doctrine of public policy? Give examples of agreement which are
opposed to public policy?
ANSWER:
An agreement is said to be opposed to public policy when it is harmful to the public
welfare. An agreement whose object (or) consideration is opposed to public policy
is void. Some of those agreements which are (or) which have been held to be,
opposed to public policy and are unlawful as follows:-
S.L
NO
opposed to public policy
1 Agreements of trading with enemy
2 Agreement to commit a crime
3 Agreements in restraint of legal proceedings
4 Agreements which interfere with administration of justice
5 Trafficking in public offices and tittles
6 Agreement tending to creates interest opposed to duty
7 Agreements in restraint of parental rights
8 Agreement in restraint of marriage
9 Agreement restricting personal liberty
10 Agreement in restraint of trade
11 Marriage brokerage
12 Agreement to defraud creditors (or) revenue authorities
13 Agreement interfering with marital duties

29. Page | 29
1. Agreements of trading with enemy:
An agreement made with an alien enemy at the time of war is illegal on the ground
of public policy. This agreement is based upon the two reasons:
a) Contract made during the continuance of the war, an alien enemy can neither
contract with an Indian subject (nor) can he sue in an Indian court. He can do so
only after he receives a license from the central government.
b) Contract made before the war may either be suspended (or) dissolved.
2. Agreement to commit a crime:
An agreement is to commit a crime is opposed to public policy and it is void. In
such a case the court will not enforce the agreements.
3. Agreements in restraint of legal proceedings:
An agreement in restraint of legal proceeding is the one by which any party thereto
is restricted absolutely from enforcing his right under a contract through a court.
Contracts of this nature are void because its object is to defeat the provision of the
Indian Limitation act.
4. Agreements which interfere with administration of justice:
Where the consideration (or) object of an agreement of which is to interfere with
the administration of justice is unlawful, being opposed to public policy. It may take
any of the following forms:-
a) Interference with the court of justice,
b) Stifling prosecution,
c) Maintenance,
d) Champerty.
5. Trafficking in public offices and tittles:
Trafficking in public offices means trading in public offices to obtain some gain
which otherwise cannot be obtained. Trafficking in tittle means some such award
from government in return of consideration. A contact of this nature is void and is
against to public policy and also it is illegal.
6. Agreement tending to creates interest opposed to duty:
If a person enters into an agreement whereby he is bound to do something which is
against to public (or) professional duty, in such a case the agreement is void on the
ground of the public policy.
7. Agreements in restraint of parental rights:
A father (or) mother is the legal guardian of his/her minor child. This right and duty
of guardianship cannot be bartered away. Therefore, a father/mother cannot
enter into an agreement inconsistent with his duties which are opposed to public
policy.
8. Agreement in restraint of marriage:
Every agreement in restraint of marriage of any person, other than a minor, is void
and opposed to public policy. This is because the law regards marriage and
marriage status as the right of every individual.
9. Agreement restricting personal liberty:
Agreement which unduly restricts the personal freedom of the parties is void and
against to public policy.
10. Agreement in restraint of trade:
Every agreement by which any one is restrained from exercising a lawful profession
(or) trade (or) business of nay kind, is to that extent void and opposed to public
policy. But this rule is subject to the following exceptions:-
a) Sale of goodwill.
b) Partner’s agreement.
c) Trade combinations.
d) Service agreement.

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In the above exceptions the court will enforce the agreements. Because only if
there is any restrictions imposed on such agreements are reasonable.
11. Marriage brokerage:
As a public policy, marriage should take place with free choice of the parties and it
cannot be interfered with by third party acting as broker. Agreement for brokerage
for arranging marriage is void. Similarly agreement of dowry cannot be enforced.
12. Agreement to defraud creditors (or) revenue authorities:
An agreement which object is to defraud the creditors (or) revenue authorities is
not enforceable, being opposed to public policy.
13. Agreement interfering with marital duties:
Any agreement which interferes with the performance of marital duties is void,
being opposed to public policy.

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CHAPTER NO: 7:
CONTINGENT CONTRACT
QUESTION NO: 20:
What is contingent contract? Explain the different between contingent contract and
wagering agreement.
ANSWER:
CONTINGENT CONTRACTS:
A “contingent contract” is a contract to do or not to do something if some event,
collateral to such contract, does not happen.
Essentials of a Contingent Contract:-
1. The performance of a contingent contract will depend upon a future event.
2. The happening of the event must be uncertain.
3. The happening or non happening of such future events should not form an
essential part of the contract, but it should only be collateral to it.
4. The happening or non happening of such future event must be beyond the
powers of the contracting parties.
Rules regarding contingent contract:
S.L NO Rules regarding contingent contract
1 Contingency on Happening of an event
2 Contingency on non-happening of an event
3 Contingency on the happening of an event within stipulated time
4 Contingency on non happening of an event within the stipulated time
5 Contingency on the non happening of impossible event
1. Contingency on Happening of an event:
The performance of the contract is conditional on the happening of an event. It
cannot be enforced unless such event occurs. If it does not occur, such contract
becomes void.
EX: ‘A’ contracts to pay ‘B’ a sum of money when ‘B’ marries ‘C’.’C’ dies without
being married to ‘B’. The contract becomes void.
2. Contingency on non-happening of an event: -
When the performance of contingent contract depends upon non-happening of
future uncertain events; on the occurrence of that event, agreements become
void.
EX: “A” agrees to sell his car to “B” if “C” dies. The contract cannot be enforced as
long as “C” is alive.
3. Contingency on the happening of an event within stipulated time: -
When a contract is made on the happening of a specified uncertain event within a
fixed time, it becomes void if at the expiration of the time so fixed, specified event
does not happen.
EX: ‘A’ agrees to pay ‘B’ a sum of money if ‘B’ marries ‘C’,’C’ marries ‘D’. The
marriage of ‘B’ to ‘C’ must be considered impossible now, although it is possible
that ‘D’ may die and that ‘C’ may afterwards marry ‘B’.
4. Contingency on non happening of an event within the stipulated time: -
When the performance of a contract depends on non happening of some event
within stipulated period of time, if the event occurs within that, contract becomes
void.
EX: ’A’ promises to pay ‘B’ a sum of money if a certain ship returns within a year. The
contract may be enforced if the ship returns within a year, and becomes void if the
ship is burnt within the year.

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5. Contingency on the non happening of impossible event:-
Contingent agreement, which depends on the happening of an impossible event
are void, whether the impossibility of the event is known or not known to the parties
to the agreement at the time when it is made.
EX: ‘A’ agrees to pay ‘B’ Rs 1000/- if ‘B’ will marry A’s daughter, ‘X’. ‘X’ was dead at
the time of the agreement. The agreement is void.
Difference between Wager and Contingent Agreement:
S.L
NO
WAGERING AGREEMENT CONTINGENT AGREEMENT
1 Wagering is an agreement
where a person agrees to pay
money to the other person
upon the happening or non
happening of an uncertain
event.
Contingent contract is one in which
promisor undertakes to perform the
contract upon happening or non
happening of an uncertain collateral
event.
2 It is void u/s 30 It is perfectly valid u/s 31.
3 Generally it is a reciprocal
promise.
There may be unilateral promises
4 In a wager the parties are not
interested in the subject matter
of the agreement except
winning or losing the amount.
The parties have real interest in the
happening or non happening of an
uncertain future event.
5 In a wager the future event is
the sole determining factor.
In a contingent contract the future
events is only collateral.
6 It is a game of chance. It is not a game of chance.

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CHAPTER NO: 8:
QUASI CONTRACT
QUESTION NO: 21:
1: Define quasi contract. Explain in detail the sections 68-72 relating in quasi
contract.
2: “in quasi contract, the promise to pay is implied and is not based on any
expressed agreement”. Explain giving illustration.
ANSWER:
Meaning:
Under certain special circumstances, a person may receive a benefit to which the
law regards another person as better entitled or for which the law considers he
should pay it to the other person, even though there is no contract between the
parties these relationships are terms as “Quasi Contract” or constructive contracts
under the English Law and “Certain relationships resembling those created by
contracts” under the Indian Law.
Quasi contract is not made by a process of proposal
and acceptance or by free consent. It is a trust upon us by law.
A Quasi-contract rests upon the equitable, which
declares that a person shall not be allowed to enrich himself unjustly at the expense
of another.
Silent features of Quasi-contract:
i. It is a right which is available not against a particular person or persons and so,
that in this respect it resembles a contractual right.
ii. It does not arise from any agreement of the parties concerned it is imposed by
law.
iii. Such Quasi-contractual right is always a right to money, and generally, though
not always, to a liquidated sum of money.
Types of Quasi-Contracts:
The Indian Contract Act provides for five types of quasi-contracts, which are as
follows:
S.L
NO
SECTION TYPES OF QUASI CONTRACT
1 Sec 68 Supply of necessaries
2 Sec 69 Reimbursement of payment made by a person who is
interested but which another person is legally bound
3 Sec 70 Obligation to pay for non gratuitous act or service
4 Sec 71 Rights and duties of the finder of lost goods
5 Sec 72 Liability of persons to whom money is paid or things delivered
by mistake or under coercion
1. Supply of necessaries:-
An agreement made by the person who has no contractual capacity are void. But
agreements made by such person to procure necessaries for him or his dependent
is legally entitled to recover the cost of such supplies.
Ex: ‘A’, supplies “B” a lunatic with necessaries suitable to his condition in life. ”A” is
entitled to reimburse from B’s property.
2. Reimbursement of payment made by a person who is interested but which
another person is legally bound :-
In certain cases it happens that one party makes a payment, because he is
interested in that payment. But liability for making that payment lies on another
person. Thus on making such payment, the person liable to pay has to reimburse it
to the person who has made the payment.

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Ex: “B” holds land Bengal on a lease granted by the Zamindar. The revenue
payable by “A” to the Government being in arrears his land is advertised for sale by
the Government under the Revenue Law. The sale will be annulment of “B’s
lease. ’B’ to prevent the sale and the consequent of annulment of his own lease
pays to the Government the sum due from A. A is bound to make good to B the
amount so paid.
3. Obligation to pay for non gratuitous act or service:-
Sometimes a person may render services voluntarily with an intention of getting its
return. The person who gets benefit of such acts or services is liable to compensate
the person doing such act or rendering services.
Ex: “A”, a tradesman lease goods at “B” house by mistake. B treats the goods as his
own. He is bound to pay for them to A.
4. Rights and duties of the finder of lost goods: -
A person who finds goods lost by another person. On his being taken custody of
those goods, certain rights and obligations are created on his part without any
formal contract. Such rights and obligations resemble with that of a formal contract
and can be enforced in a similar manner.
Ex: “F” picks up a diamond on the floor of ‘S’s shop. He hands it over to ‘S’ to keep it
till the real owner is found out. No one appears to claim it for quite some week’s
inspite of wide advertisement in the news papers. ‘F’ claims the diamond from ‘S’
who refuses to return. ‘S’ is bound to return the Diamond to ‘F’ who is entitled to
retain the diamond against the whole world except the true owner.
5. Liability of persons to whom money is paid or things delivered by mistake or
under coercion: -
Where the person has delivered some goods or has made payments of money to
another person either by mistake or under coercion. Such person is under legal
obligation to return it to the person delivering.
Ex: “A” & “B” jointly owe Rs.100/- to “C”. A alone pays the amount to C and B not
knowing this fact pays Rs.100/- over again to “C”. C is bound to pay the amount to
B.

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CHAPTER NO: 9:
PERFORMANCE OF CONTRACT
QUESTION NO: 22:
What is performance of contract? What are its essential conditions?
ANSWER:
Performance of contract:
Performance of contract occurs when the parties to the contract fulfill their
obligation under the contract within the time and manner prescribed.
OFFER OF PERFORMANCE OR TENDER:
When promisor has made a valid offer of performance to the promise and offer
had not been accepted by the promise, the promisor is not responsible for non
performance and he does not lose any rights under the contract.
A valid tender of performance is equivalent to
performance. It is also known as “attempted performance” or “tender.”
The following are the essentials or requisites of a valid tender:
1. It must be unconditional. It becomes conditional when it is not in accordance
with the terms of the contract.
Ex: ‘D’ a debtor offers to pay to ‘C’, his creditor, the amount due to him on the
condition that ‘C’ sells to him certain shares at cost. This is not a valid tender.
2. It must be the whole quality contracted for or of the whole obligation. A tender
of an installment when the contract stipulated payment in full is not a valid tender.
3. It must be by a person who is in a position, and is willing to perform the promise.
4. It must be made at the proper time and place. A tender of goods after the
business hours or of goods or money before the de date is not a valid-tender.
Ex: “D” owes “C” Rs.100/- payable on 1st of August with interest. He offers to pay on
the 1st of July the amount with interest up to the 1st of July. It is not a valid tender as
it not made at the appointed time.
5. It must be made to the proper person and also in proper form.
6. It may be made to one of the several joint promises. In such a case it has the
same effect as a tender to all of them.
7. In case of tender of goods, it must give a reasonable opportunity to the promise
for inspection of the goods. A tender of goods at such time when the other party
cannot inspect the goods is not a valid tender.
8. In case of tender of money, the debtor must make a valid tender in legal tender
money.
Ex: In India in rupees, us-dollars etc..,
Question no: 23:
1: By whom must contracts be performed?
2: enlist the persons who can perform the contracts.
ANSWER:
A contract may be performed by any of the following.
1: promisor himself
2: agent
3: legal representatives
4: third persons
5: joint promisors
1: Promisor himself:
It is very clear that a person who makes a promise must perform it. If a contract
involves the exercise of personal skill and qualification of the promisor then it must

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be performed by the promisor himself and not by any other person and in case of
death of such promisor, his heirs are not liable to perform the contract.
For Example, X is a painter who promise to paint a picture for Y. In this case X alone
must perform the contract personally. If X dies, his heirs are not liable to perform the
contract.
2: By the agent of promisor:
When the personal skill of the promisor is not necessary, and the work could be
done by any one, the promisor or his representative may employ a competent
person to perform it. He acts as an agent of the promisor.
EX: ‘A’ promises to pay ‘B’ a sum of money; ‘A’ may perform the promise, either by
personally paying the money to ‘B’ or by causing (making)it to be paid to ‘B’ by
another.
3: By legal representative:
If the promisor dies before the performance of the contract, his legal representative
like son and daughter who inherit the property of the deceased promisor are
bound to perform it.
EX: ‘A’ promises to deliver goods to ‘B’ on a certain day on payment of Rs.1000/-.
‘A’ dies before that day. A’s representatives are bound to deliver the goods to ‘B’,
and ‘B’ is bound to pay Rs 1000/- to A’s representative.
4: Third person:
If the promisee accepts performance of the promise from third party, there is
discharge of the contract and the promisor is thereby discharged.
5: Joint promisors:
When two or more persons have made a joint promise, then unless a contrary
intention appears from the contract, all such persons must jointly fulfill the promise, if
any of them dies, his legal representatives must jointly with the surviving promisor
have to fulfill the promise. If all of them die, the legal representatives of all of them
must fulfill the promise jointly.
QUESTION NO: 24:
1: Explain about “DEVOLUTION OF JOINT LIABILITIES AND RIGHTS”.
2: explain the rules regarding the performance of joint promises.
ANSWER:
When two or more individuals are bound to perform a contract together, it is called
a joint promise. When a joint promise is made, then unless contrary intention
appears from the contract, all such persons must jointly with the surviving promisors
fulfill the promise.
The following are the rules regarding the performance of Joint Promises:
1 Devolution of Joint Liabilities (Section 42)
2 Any one of Joint Promisors may be compelled to perform (Section 43)
3 Effect to release of one Joint Promisor (Section 44)
4 Devolution of Joint Rights (Section 45)
1: Devolution of Joint Liabilities (Section 42)
When two or more persons have made a joint promise then, unless a contrary
intention appears by the contract, all such persons, during their joint lives, and after
the death of any of them, his representative jointly with the survivor, or survivors, and
after the death of the last survivor, the representatives of all jointly, must fulfill the
promise.

37. Page | 37
2: Any one of Joint Promisors may be compelled to perform (Section 43)
When two or more persons make a joint promise, the promisee may, in the absence
of express agreement to the contrary, compel any one or more of such joint
promisors to perform the whole of the promise.
 Each promisor may compel contribution– Each of two or more joint promisors
may compel every other joint promisor to contribute equally with himself to
the performance of the promise, unless a contrary intention appears from the
contract.
 Sharing of loss by default in contribution– If any one of two or more joint
promisors makes default in such contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares.
Explanation : Nothing in this section shall prevent a surety from recovering from his
principal, payments made by the surety on behalf of the principal, or entitle the
principal to recover anything from the surety on account of payments made by the
principal.
Examples:
(a) A, B and C jointly promise to pay D `3,000. D may compel either A or B or C to
pay him `3,000.
(b) A, B and C jointly promise to pay D the sum of `3,000. C is compelled to pay the
whole. A is insolvent, but his assets are sufficient to pay one-half of his debts, C is
entitled to receive `500 from A’s estate, and `1,250 from B.
(c) A, B and C are under a joint promise to pay D `3,000. C is unable to pay
anything, and A is compelled to pay the whole. A is entitled to receive `1,500 from B.
(d) A, B and C are under a joint promise to pay D `3,000, A and B being only sureties
for C. C fails to pay. A and B are compelled to pay the whole sum. They are entitled
to recover it from C.
3: Effect to release of one Joint Promisor (Section 44)
Where two or more persons have made a joint promise, a release of one of such
joint promisors by the promisee does not discharge the other joint promisor or joint
promisors; neither does it free the joint promisor so released from responsibility to the
other joint promisor or joint promisors.
4: Devolution of Joint Rights (Section 45)
When a person has made a promise to two or more persons jointly, then, unless a
contrary intention appears from the contract, the right to claim performance rests,
as between him and them, with them during their joint lives, and, after the death of
any of them, with the representative of such deceased person jointly with the
survivor or survivors, and. after the death of the last survivor, with the representatives
of all jointly.
Example:
A, in consideration of ` 5,000, lent to him by B and C, promises B and C jointly to
repay them that sum with interest on a day specified. B dies. The right to claim
performance rests with B’s representative jointly with C during C’s life, and after the
death of C with the representatives
of B and C jointly.
QUESTION NO: 25:
What are the rules of law relating to time and place of performance of contract?
ANSWER:

38. Page | 38
Time and place of performance:
Time and place of performance of a contract are matters/rules to be determined
by an agreement between the parties themselves. Section 46 to 50 of the contract
Act lay down the rules regarding the time and place of performance they are
follows:-
S.L NO SECTION Legal rule of Time and place of performance
1 sec46 Where time is not fixed
2 sec 47 Where time is fixed
3 Sec 48 Place of performance
4 Sec 49 Application by the promisor to the promisee to appoint a
place
5 Sec 50 Performance in manner or at the time prescribed or
sanctioned by the promise
1: Where time is not fixed [sec46]:
Where the contract is to be performed without any demand by the promisee and
where no time for performance is fixed then the contract must be performed within
a reasonable time.
2: Where time is fixed [sec 47]:
When a promise is to be performed on a certain day and the promisor has
undertaken to perform it without application by the promisee the promisor may
perform it at any time during the usual hours of business on such a day and at the
place at which the promise ought to be performed.
EX: “A” promises to deliver goods at “B”s warehouse on the 1st of January. On that
day “A” brings the goods to “B”s warehouse, but after usual hour of closing it and
they are not received. “A” has not performed the promise.
3: Place of performance [Sec 48]:
If the contract mentions a place, the contract must be performed at the place
mentioned in the contract. If no place is mentioned, the promisor must ask the
promisee to fix a reasonable place to perform the contract.
4: Application by the promisor to the promisee to appoint a place [Sec 49]:
When a promise is to be performed without application by the promisee and no
place is fixed for the performance, it is the duty of the promisor to apply to the
promisee to appoint a reasonable place for the performance of the promise and
perform the promise at such place.
EX: “A” undertakes to deliver goods to “B” on a fixed day. “A” must apply to “B” to
appoint a reasonable place for the purpose of receiving it, and must deliver it to
him at such place.
5: Performance in manner or at the time prescribed or sanctioned by the promise
[Sec 50]:
The performance of any promise may be made in any manner or at any time which
the promise prescribes or sanctions.
QUESTION NO: 26:
What do you mean by reciprocal promises? Explain rule regarding reciprocal
promises.
ANSWER:
According to section 2(f) of the Indian contract Act, 1872. ‘Promises which form the
consideration for each other are called reciprocal promises.
These promises have been classified by Lord Mansfield based on the jones (vs)
Barkley case they are as follows:-

39. Page | 39
1: Mutual and independent:
Where each party must perform his promise independently and irrespective of the
fact whether the other party has performed, (or) not, the promises are mutual and
independent.
Ex: - ‘B’ agrees to pay the price of goods on 10th. ‘S’ promises to supply the goods
on 20th. The promises are mutual and independent.
2: Conditional and dependent:
Where the performance of the promise by one party depends on the prior
performance of the promise by the other party, the promises are conditional and
independent.
Ex: - ‘A’ promises to remove certain debris (something which has destroyed) lying in
front of ‘B’s supplies him with the cart. The promises are conditional and
independent.
3: Mutual and concurrent:
Where the promises of the both the parties are to be performed simultaneously,
they are said to be mutual and concurrent.
Ex: - sale of goods for cash.
RULES REGARDING RECIPOCAL PROMISES
S.L NO SECTION RULES REGARDING RECIPOCAL PROMISES
1 Sec 51 Promisor not bound to perform unless reciprocal promisee
ready and willing to perform
2 Sec 52 Order of Performance of Reciprocal Promises
3 Sec 53 Liability of party preventing event on which the contract is to
take effect
4 Sec 54 Effect of default as to that promise which should be first
performed, in contract consisting of Reciprocal Promises
5 Sec 57 Reciprocal Promises to do things legal, and also other things
illegal
1: Promisor not bound to perform unless reciprocal promisee ready and willing to
perform (Section 51)
When a contract consists of reciprocal promises to be simultaneously performed, no
promisor need perform his promise unless the promisee is ready and willing to
perform his reciprocal promise.
Example:
A and B contract that A shall deliver goods to B to be paid for by B on delivery. A
need not deliver the goods, unless B is ready and willing to pay for the goods on
delivery. B need not pay for the goods, unless A is ready and willing to deliver them
on payment.
2: Order of Performance of Reciprocal Promises (Section 52)
Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they shall be performed in that order; and, where the order is not
expressly fixed by the contract, they shall be performed in that order which the
nature of the transaction requires.
Example:
A and B contract that A shall build a house for B at a fixed price. A’s promise to
build the house must be performed before B’s promise to pay for it.
3: Liability of party preventing event on which the contract is to take effect (Section
53)
When a contract contains reciprocal promises, and one party to the contract
prevents the other from performing his promise, the contract becomes voidable at
the option of the party so prevented; and he is entitled to compensation from the
other party for any loss which he may sustain in consequence of the non-
performance of the contract.

40. Page | 40
Example:
A and B contract that B shall execute certain work for A for a thousand rupees. B is
ready and willing to execute the work accordingly, but A prevents him from doing
so. The contract is voidable at the option of B; and, if he elects to rescind it, he is
entitled to recover from A compensation for any loss which he has incurred by its
non-performance.
4: Effect of default as to that promise which should be first performed, in contract
consisting of Reciprocal Promises (Section 54)
When a contract consists of reciprocal promises, such that one of them cannot be
performed, or that its performance cannot be claimed till the other has been
performed, and the promiser of the promise last mentioned fails to perform it, such
promisor cannot claim the performance of the reciprocal promise, and must make
compensation to the other party to the contract for any loss which such other party
may sustain by the nonperformance of the contract.
Example:
A contracts with B to execute certain builder ’s work for a fixed price, B supplying
the scaffolding and timber necessary for the work. B refuses to furnish scaffolding or
timber, and the work cannot be executed. A need not execute the work, and B is
bound to make compensation to A for any loss caused to him by the non-
performance of the contract.
5: Reciprocal Promises to do things legal, and also other things illegal (Section 57)
Where persons reciprocally promise, firstly, to do certain things which are legal, and,
secondly, underspecified circumstances, to do certain other things which are illegal,
the first set of promises is a contract, but the second is a void agreement.

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EXPLAIN THE TIME ESSENCE OF THE CONTRACT
Time is Essence of the Contract (Section 55)
When a party to a contract promises to do a certain thing at or before a specified
time, or certain things at or before specified times, and fails to do any such thing at or
before the specified time, the contract, or so much of it as has not been performed,
becomes voidable at the option of the promisee, if the intention of the parties was
that time should be of the essence of the contract.
 Effect of such failure when time is not essential — If it was not the intention of
the parties that time should be of the essence of the contract, the contract
does not become voidable by the failure to do such thing at or before the
specified time; but the promisee is entitled to compensation from the promisor
for any loss occasioned to him by such failure.
 Effect of acceptance of performance at time other than that agreed upon — If,
in case of a contract voidable on account of the promisor’s failure to perform
his promise at the time agreed, the promise accepts performance of such
promise at any time other than that agreed, the promisee cannot claim
compensation for any loss occasioned by the nonperformance of the promise
at the time agreed, unless, at the time of such acceptance, he gives notice to
the promisor of his intention to do so.
EXPLAIN THE APPROPRIATION OF PAYMENTS
Application of Payment where debt to be discharged is indicated (Section 59)
Where a debtor, owing several distinct debts to one person, makes a payment to him,
either with express intimation, or under circumstances implying that the payment is to
be applied to the discharge of some particular debt, the payment, if accepted, must
be applied accordingly.
Illustrations
(a) A owes B, among other debts, ` 1,000 upon a promissory note which falls due on
the first
June. He owes B no other debt of that amount. On the first June A pays to B ` 1,000.
The payment is to be applied to the discharge of the promissory note.
(b) A owes to B, among other debts, the sum of ` 567. B writes to A and demands
payment of this sum. A sends to B ` 567. This payment is to be applied to the
discharge of the debt of which B had demanded payment.
Application of payment where debt to be discharged is not indicated (Section 60)
Where the debtor has omitted to intimate and there are no other circumstances
indicating to which debt the payment is to be applied, the creditor may apply it at
his discretion to any lawful debt actually due and payable to him from the debtor,
whether its recovery is or is not barred by the law in force for the time being as to the
limitation of suits.
Application of Payment where neither party appropriates (Section 61)
Where neither party makes any appropriation the payment shall be applied in
discharge of the debts in order of time, whether they are or are not barred by the law
in force for the time being as to the limitation of suits. If the debts are of equal
standing, the payment shall be applied in discharge of each proportionately.

42. Page | 42
CHAPTER NO : 10:
DISCHARGE OF CONTRACT
QUESTION NO: 27:
What do you mean by discharge of contract? Explain the ways in which contract
can be discharged.
ANSWER:
DISCHARGE OF CONTRACT
Discharge of contract means terminations of the contractual relationship between
the parties. On the termination of such relationship the parties are released from
their obligations in the contract.
Modes of discharging Contract:
A contract may be discharged in any one of the following ways.
1. Discharge by performance
2. Discharge by agreement
3. Discharge by lapse of time
4. Discharge by operation of law
5. Discharge by impossibility of performance
6. Discharge by breach of contract
1. DISCHARGE BY PERFORMANCE
Discharge by performance takes place when the parties to the contract fulfill their
obligations arising under the contract within the time and in the manner prescribed.
a) Actual performance: When both the parties perform their promises, the contract
is discharged. Performance should be complete, precise and according to the
terms of the agreement, most of the contracts are discharged by performance in
this manner.
b) Attempted performance or tender. Tender is not actual performance but is only
an offer to perform the obligation, under the contract.
2: DISCHARGE BY AGREEMENT:
The parties may agree to terminate the existence of the contract by any of the
following ways:
a. Novation (Sec. 62)
b. Alteration (Sec. 62)
c. Rescission (Sec. 62)
d. Remission (Sec. 63)
e. Waiver (Sec. 63)
A: Novation:
Substitution of a new contract in place of the existing contract is known as
“Novation of Contract”. It discharges the original contract. The new contract may
be between the same parties or between different parties. Novation can take
place only with the consent of all the parties.
Example: A owes money to B under a contract. It is agreed between A, B and C
that B should accept C as his debtor, instead of A. The old debt of A and B is at an
end and a new debt from C to B has been contracted. There is novation involving
change of parties.
B: Alteration:
Alteration means change in one or more of the terms of the contract. In case of
novation there may be a change of the parties, while in the case of alteration, the
parties remain the same. But there is a change in the terms of the contract.

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Example: - A enters into a contract with B for the supply of 100 bales of cotton at his
godown No 1 by the first of the next month. A and b may alter the terms of the
contract by mutual consent.
C: Rescession:
Rescission means “cancellation”. All or some of the terms of a contract may be
cancelled. Rescission results in the discharge of the contract.
Example: - A promises to supply certain goods to b six months after dater. By that
time, the goods go out of fashion. A and B may rescind the contract.
D: Remission:
Remission means acceptance of a lesser performance that what is actually due
under the contract. There is no need of any consideration for remission.
Example: A has borrowed ` 500 from B. A agrees to accept ` 250 from B in
satisfaction of
the whole debt. The whole debt is discharged.
E: Waiver:
Waiver means giving up or foregoing certain rights. When a party agrees to give up
its rights, the contract is discharged.
Example: A promises to paint a picture of B. B afterwards forbids him to do so. A is
no longer bound to perform the promise.
3: DISCHARGE BY LAPSEE OF TIME:
Every contract must be performed within a fixed or reasonable period. Lapse of
time discharges the contract. The Indian Limitation Act has prescribed the period
within which the existing rights can be enforced in courts of law.
Example: If a creditor does not file a suit within three years of debt, the debt
becomes time barred. He is deprived of his legal remedy.
4: DISCHARGE BY OPERATION OF LAW:
A contract may be discharged by operation of law in the following cases.
a. Death
b. Insolvency
c. Unauthorized material alteration.
d. Merger
A. Death:
In contracts involving personal skill or ability, death terminates the contracts. In
other cases, the rights and liabilities of the deceased person will pass on to his legal
representatives.
B. Insolvency:
The insolvency of the promisor discharges the contract. The promisor is discharged
from all liabilities incurred prior to his adjudication.
C. Unauthorized material alteration:
Material alteration in the terms of the contract without the consent of the other
party discharges the contract. Change in the amount of money to be paid, date of
payment, place of payment etc. are examples of material alteration.
D. Merger:
When inferior rights of a person under a contract merge with superior rights under a
new contract, the contract with inferior rights will come to an end.
Examples: Where a part-time lecturer is made full-time lecturer, merger discharges
the contract of part-time lectureship.
5: DISCHARGE BY BREACH OF CONTRACT:
Breach means failure of a party to perform his obligations under a contract. Breach
brings an end to the obligations created by a contract.

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6: DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE:
Impossibility of performance results in the discharge of the contract. An agreement
which is impossible is void, because law does not compel to do impossible things.
Example: A and B wanted to marry each other. Before the time fixed for marriage,
a goes mad. The contract becomes void.

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CHAPTER NO: 11:
REMEDIES FOR BREACH OF CONTRACT
When there is breach of contract, the aggrieved party has one or more of the
following remedies.
1. Suit for Rescission of the contract.
2. Suit for damages
3. Suit upon Quantum meruit
4. Suit for specific performance of the contract.
5. Suit for Injunction.
1. Suit for Rescission of the contract:
Rescission means the cancellation of a contract. When there is a breach of
contract by one party, the other party may sue to treat the contract as rescinded.
When the court grants rescission, the aggrieved party is free from all his obligations
under the contract. He becomes entitled to compensation for any damage which
he suffered
Example: X promises to deliver a book on 5th January and Y agrees to pay its price
on receipt of the book. X fails to deliver the book for no valid reason. Y may treat
the contract as repudiated and may refuse to pay the price.
The court may grant rescission if the contract is voidable on the part of the
aggrieved party.
The court may refuse to grant rescission in the following cases:
a. When the aggrieved has ratified the contract
b. Owing to change of circumstances parties cannot be restored to their original
position.
c. During the subsistence of the contract, third parties have acquired rights in good
faith and for value.
d. When only part of the contract is sought to be rescinded and such part is not
severable from rest of the contract.
2: Suit for damages: -
When a contract is broken, the injured party can claim damages from the other
party. The object of awarding damages for the breach of a contract is to put the
injured party in the same financial position as if the contract had been performed.
No compensation is to be given for any indirect or remote loss on account of
breach.
There are different types of damages
a. Compensatory damages: These damages include the direct loss suffered by the
aggrieved party, and it is calculated as on the date of breach, taking into
consideration, the prevailing circumstances.
b. Special damages: - These damages are those which arise from the breach of
contract under special circumstances. If there is a breach of contract under special
circumstances, special damages can be claimed. Special damages can be
recovered only if it stipulated in the contract.
c. Exemplary damages or vindictive damages: - These damages are awarded with
a view to punish the defaulting party who injured the feelings of the othrs and not
solely with the idea of awarding compensation to the injured party.
d. Nominal damages: Nominal damages are awarded in cases where the injured
party is able to prove a breach of contract, but he has not suffered any real and
substantial loss. The basic idea of granting such damages is to bring the party
making breach of contract to record and to recognize the right of aggrieved party.