THE INDIAN CONTRACT ACT, 1872

MEANING AND NATURE OF CONTRACT

The Law of Contract constitutes the most important branch of Mercantile
or Commercial Law. It affects everybody, more so, trade, commerce and
industry. It may be said that the contract is the foundation of the civilized world.
The law relating to contract is governed by the Indian Contract Act, 1872. The
Act came into force on the first day of September, 1872. The preamble to the Act
says that it is an Act “to define and amend certain parts of the law relating to
contract”. It extends to the whole of India except the State of Jammu and Kashmir.
The Act is by no means exhaustive on the law of contract. It does not deal with all
the branches of the law of contract. Thus, contracts relating to partnership, sale of
goods, negotiable instruments, insurance etc. are dealt with by separate Acts.
The Indian Contract Act mostly deals with the general principles and
rules governing contracts. The Act is divisible into two parts. The first part (Section
1-75) deals with the general principles of the law of contract, and therefore
applies to all contracts irrespective of their nature. The second part (Sections 124-
238) deals with certain special kinds of contracts, namely contracts of Indemnity
and Guarantee, Bailment, Pledge, and Agency.
The term contract has been defined by various authors in the following manner:
“A contract is an agreement creating and defining obligations between the
parties”. —Salmond
“A contract is an agreement enforceable at law, made between two or
more persons, by which rights are acquired by one or more to acts or forbearances
on the part of the other or others”. —Anson
“Every agreement and promise enforceable at law is a contract”.
—Sir Fredrick Pollock
The Indian Contract Act has defined contract in Section 2(h) as “an agreement
enforceable by law”.
These definitions indicate that a contract essentially consists of two distinct
parts. First, there must be an agreement. Secondly, such an agreement
must be enforceable by law. To be enforceable, an agreement must be
coupled with an obligation.
A contract therefore, is a combination of the two elements: (1) an agreement and
(2) an obligation.
Agreement
An agreement gives birth to a contract. As per Section 2(e) of the Indian Contract
Act “every promise and every set of promises, forming the consideration for each
other, is an agreement. It is evident from the definition given above that an
agreement is based on a promise. What is a promise? According to Section 2(b) of
the Indian Contract Act “when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when accepted,
becomes a promise. An agreement, therefore, comes into existence when one
party makes a proposal or offer to the other party and that other party signifies his
assent thereto. In nutshell, an agreement is the sum total of offer and acceptance.”
An analysis of the definition given above reveals the following characteristics of
an agreement:
(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: The meeting of the minds is called consensus-ad-
idem. It means both the parties to an agreement must agree about the
subject matter of the agreement in the same sense and at the same time.
Obligation
An obligation is the legal duty to do or abstain from doing what one has promised
to do or abstain from doing. A contractual obligation arises from a bargain between
the parties to the agreement who are called the promisor and the promisee. Section
2(b) says that when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted; and a proposal when accepted becomes
a promise. In broad sense, therefore, a contract is an exchange of promises by two or
more persons, resulting in an obligation to do or abstain from doing a particular act,
where such obligation is recognised and enforced by law.
Rights and Obligations
Where parties have made a binding contract, they have created rights
and obligations between themselves. The contractual rights and obligations
are correlative, e.g., A agrees with B to sell his car for Rs. 10,000 to him. In this
example, the following rights and obligations have been created:
(i) A is under an obligation to deliver the car to B.
B has a corresponding right to receive the car.
(ii) B is under an obligation to pay Rs. 10,000 to A.
A has a correlative right to receive Rs. 10,000.
Agreements which are not Contracts
Agreements in which the idea of bargain is absent and there is no intention to
create legal relations are not contracts. These are:
(a) Agreements relating to social matters: An agreement between two persons to
go together to the cinema, or for a walk, does not create a legal obligation on
their part to abide by it. Similarly, if I promise to buy you a dinner and break
that promise, I do not expect to be liable to legal penalties. There cannot be
any offer and acceptance to hospitality.
(b) Domestic arrangements between husband and wife: In Balfour v. Balfour
(1919) 2 KB 571, a husband working in Ceylone, had agreed in writing to pay
a housekeeping allowance to his wife living in England. On receiving
information that she was unfaithful to him, he stopped the allowance: Held,
he was entitled to do so. This was a mere domestic arrangement with no
intention to create legally binding relations. Therefore, there was no contract.
Three consequences follow from the above discussion.
 (i)To constitute a contract, the parties must intend to create legal relationship.
(ii) The law of contract is the law of those agreements which create obligations,
and those obligations which have their source in agreement.
(iii) Agreement is the genus of which contract is the specie and, therefore, all
contracts are agreements but all agreements are not contracts.

ESSENTIAL ELEMENTS OF A VALID CONTRACT

Section 10 of the Indian Contract Act, 1872 provides that “all agreements
are contracts if they are made by the free consent of parties competent to contract,
for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void”.
The essential elements of a valid contract are:
(i) An offer or proposal by one party and acceptance of that offer by another
party resulting in an agreement—consensus-ad-idem.
(ii) An intention to create legal relations or an intent to have legal consequences.
(iii) The agreement is supported by a lawful consideration.
(iv) The parties to the contract are legally capable of contracting.
(v) Genuine consent between the parties.
(vi) The object and consideration of the contract is legal and is not opposed to
public policy.
(vii) The terms of the contract are certain.
(viii) The agreement is capable of being performed i.e., it is not impossible of
being performed.
Therefore, to form a valid contract there must be (1) an agreement, (2) based on
the genuine consent of the parties, (3) supported by a lawful consideration, (4) made
for a lawful object, and (iv) between the competent parties.
(a) Offer or Proposal and Acceptance
One of the early steps in the formation of a contract lies in arriving at
an agreement between the contracting parties by means of an offer and
acceptance. Thus, when one party (the offeror) makes a definite proposal to
another party (the offeree) and the offeree accepts it in its entirety and without any
qualification, there is a meeting of the minds of the parties and a contract comes into
being, assuming that all other elements are also present.
What is an Offer or a Proposal?
A proposal is also termed as an offer. The word ‘proposal’ is synonymous with
the English word “offer”. An offer is a proposal by one person, whereby he expresses
his willingness to enter into a contractual obligation in return for a promise, act or
forbearance. Section 2(a) of the Indian Contract Act defines proposal or offer as
“when one person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of that other to such act or abstinence,
he is said to make a proposal”. The person making the proposal or offer is called the
proposer or offeror and the person to whom the proposal is made is called the
offeree.
Rules Governing Offers
A valid offer must comply with the following rules:
(a) An offer must be clear, definite, complete and final. It must not be vague.
For example, a promise to pay an increased price for a horse if it proves
lucky to promisor, is too vague and is not binding.
(b) An offer must be communicated to the offeree. An offer becomes
effective only when it has been communicated to the offeree so as to
give him an opportunity to accept or reject the same.
(c) The communication of an offer may be made by express words-oral or
written-or it may be implied by conduct. A offers his car to B for Rs. 10,000. It
is an express offer. A bus plying on a definite route goes along the street.
This is an implied offer on the part of the owners of the bus to carry
passengers at the scheduled fares for the various stages.
(d) The communication of the offer may be general or specific. Where an offer is
made to a specific person it is called specific offer and it can be accepted
only by that person. But when an offer is addressed to an uncertain body of
individuals i.e. the world at large, it is a general offer and can be accepted by
any member of the general public by fulfilling the condition laid down in the
offer. The leading case on the subject is Carlill v. Carbolic Smoke Ball Co.
The company offered by advertisement, a reward of # 100 to anyone who
contacted influenza after using their smoke ball in the specified manner. Mrs.
Carlill did use smoke ball in the specified manner, but was attacked by
influenza. She claimed the reward and it was held that she could recover the
reward as general offer can be accepted by anybody. Since this offer is of a
continuing nature, more than one person can accept it and can even claim
the reward. But if the offer of reward is for seeking some information or
seeking the restoration of missing thing, then the offer can be accepted by
one individual who does it first of all. The condition is that the claimant must
have prior knowledge of the reward before doing that act or providing that
information.
Example: A advertise in the newspapers that he will pay rupees one thousand
to anyone who restores to him his lost son. B without knowing of this reward finds
A’s lost son and restore him to A. In this case since B did not know of the
reward, he cannot claim it from A even though he finds A’s lost son and restores him
to A.
In India also, in the case of Harbhajan Lal v. Harcharan Lal (AIR 1925 All. 539),
the same rule was applied. In this case, a young boy ran away from his fathers home.
The father issued a pamphlet offering a reward of Rs. 500 to anybody who would
bring the boy home. The plaintiff saw the boy at a railway station and sent a telegram
to the boys father. It was held that the handbill was an offer open to the world at large
and was capable to acceptance by any person who fulfilled the conditions contained
in the offer. The plaintiff substantially performed the conditions and was entitled to the
reward offered.
An Offer must be Distinguished from
(a) An invitation to treat or an invitation to make an offer: e.g., an
auctioneers request for bids (which are offered by the bidders), the display of
goods in a shop window with prices marked upon them, or the display of priced
goods in a self-
service store or a shopkeepers catalogue of prices are invitations to an offer.
(b) A mere statement of intention: e.g., an announcement of a coming auction
sale. Thus, a person who attended the advertised place of auction could not sue for
breach of contract if the auction was cancelled (Harris v. Nickerson (1873) L.R. 8 QB
286).
(c) A mere communication of information in the course of negotiation: e.g.,
a statement of the price at which one is prepared to consider negotiating the sale
of piece of land (Harvey v. Facey (1893) A.C. 552).
An offer that has been communicated properly continues as such until it lapses,
or until it is revoked by the offeror, or rejected or accepted by the offeree.
Lapse of Offer
Section 6 deals with various modes of lapse of an offer. It states that an offer
lapses if—
(a) it is not accepted within the specified time (if any) or after a reasonable time,
if none is specified.
(b) it is not accepted in the mode prescribed or if no mode is prescribed in
some usual and reasonable manner, e.g., by sending a letter by mail
when early reply was requested;
(c) the offeree rejects it by distinct refusal to accept it;
(d) either the offeror or the offeree dies before acceptance;
(e) the acceptor fails to fulfill a condition precedent to an acceptance.
(f) the offeree makes a counter offer, it amounts to rejection of the offer and an
offer by the offeree may be accepted or rejected by the offeror.
Revocation of Offer by the Offeror
An offer may be revoked by the offeror at any time before acceptance.
Like any offer, revocation must be communicated to the offeree, as it does
not take effect until it is actually communicated to the offeree. Before its
actual communication, the offeree, may accept the offer and create a binding
contract. The revocation must reach the offeree before he sends out the acceptance.
An offer to keep open for a specified time (option) is not binding unless it is
supported by consideration.
Acceptance
A contract emerges from the acceptance of an offer. Acceptance is the act
of assenting by the offeree to an offer. Under Section 2(b) of the Contract Act
when a person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted becomes a promise..
Rules Governing Acceptance
(a) Acceptance may be express i.e. by words spoken or written or implied from
the conduct of the parties.
(b) If a particular method of acceptance is prescribed, the offer must be accepted
in the prescribed manner.
(c) Acceptance must be unqualified and absolute and must correspond with all
 the terms of the offer.
(d) A counter offer or conditional acceptance operates as a rejection of the
offer and causes it to lapse, e.g., where a horse is offered for Rs. 1,000
and the offeree counter-offers Rs. 990, the offer lapses by rejection.
(e) Acceptance must be communicated to the offeror, for acceptance is complete
the moment it is communicated. Where the offeree merely intended to accept
but does not communicate his intention to the offeror, there is no contract.
Mere mental acceptance is not enough.
(f) Mere silence on the part of the offeree does not amount to acceptance.
Ordinarily, the offeror cannot frame his offer in such a way as to make
the silence or inaction of the offeree as an acceptance. In other words,
the offeror can prescribe the mode of acceptance but not the mode of
rejection.
In Felthouse v. Bindley (1865), F offered by letter to buy his nephews
horse for  30 saying: “If I hear no more about him I shall consider the
horse is mine at  30". The nephew did not reply, but he told an auctioneer
who was selling his horses not to sell that particular horse because it was
sold to his uncle. The auctioneer inadvertently sold the horse. Held: F
had no claim against the auctioneer because the horse had not been sold
to him, his offer of  30 not having been accepted.
(g) If the offer is one which is to be accepted by being acted upon,
no communication of acceptance to the offeror is necessary,
unless communication is stipulated for in the offer itself.
Thus, if a reward is offered for finding a lost dog, the offer is accepted
by finding the dog after reading about the offer, and it is unnecessary
before beginning to search for the dog to give notice of acceptance to the
offeror.
(h) Acceptance must be given within a reasonable time and before the offer
lapses or is revoked. An offer becomes irrevocable by acceptance.
An acceptance never precedes an offer. There can be no acceptance of
an offer which is not communicated. Similarly, performance of conditions of
an offer without the knowledge of the specific offer, is no acceptance.
Thus in Lalman Shukla v. Gauri Dutt (1913), where a servant brought the
boy without knowing of the reward, he was held not entitled to reward
because he did not know about the offer.
Standing Offers
Where a person offers to another to supply specific goods, up to a stated quantity
or in any quantity which may be required, at a certain rate, during a fixed period, he
makes a standing offer. Thus, a tender to supply goods as and when required,
amounts to a standing offer.
A standing offer or a tender is of the nature of a continuing offer. An acceptance
of such an offer merely amounts to an intimation that the offer will be considered to
remain open during the period specified and that it will be accepted from time to time
by placing order for specified quantities. Each successive order given, while the offer
remains in force, is an acceptance of the standing offer as to the quantity ordered,
and creates a separate contract. It does not bind either party unless and until such
orders are given.
Where P tendered to supply goods to L upto a certain amount and over a
certain period, L’s order did not come up to the amount expected and P sued for
breach of contract Held: Each order made was a separate contract and P was
bound to fulfill orders made, but there was no obligation on L to make any order to
all (Percival Ltd. v. L.C.C. (1918).
Tickets
Tickets purchased for entrance into places of amusement, or tickets issued
by railways or bus companies, clock-room tickets, and many other contracts set
out in printed documents contain numerous terms, of many of which the party
receiving the ticket or document is ignorant. If a passenger on a railway train
receives a ticket on the face of which is printed “this ticket is issued subject to the
notices, regulations and conditions contained in the current time-tables of the
railway”, the regulations and conditions referred to are deemed to be
communicated to him and he is bound by them whether or not he has read them.
He is bound even if he is illiterate and unable to read them. But it is important that
the notice of the conditions is contemporaneous with the making of the contract and
not after the contract has been made.
Contracts by Post
Contracts by post are subject to the same rules as others, but because of their
importance, these are stated below separately:
(a) An offer by post may be accepted by post, unless the offeror indicates
anything to the contrary.
(b) An offer is made only when it actually reaches the offeree and not before,
i.e., when the letter containing the offer is delivered to the offeree.
(c) An acceptance is made as far as the offeror is concerned, as soon as
the letter containing the acceptance is posted, to offerors correct
address; it binds the offeror, but not the acceptor.
An acceptance binds the acceptor only when the letter containing
the acceptance reaches the offeror. The result is that the acceptor can
revoke his acceptance before it reaches the offeror.
(d) An offer may be revoked before the letter containing the acceptance is
posted. An acceptance can be revoked before it reaches the offeror.
Contracts over the Telephone
Contracts over the telephone are regarded the same in principle as
those negotiated by the parties in the actual presence of each other. In both cases
an oral offer is made and an oral acceptance is expected. It is important that the
acceptance must be audible, heard and understood by the offeror. If during the
conversation the telephone lines go “dead” and the offeror does not hear the
offerees word of acceptance, there is no contract at the moment. If the whole
conversation is repeated and the offeror hears and understands the words of
acceptance, the contract is complete (Kanhaiyalal v. Dineshwarchandra (1959)
AIR, M.P. 234).
(b) Intention to Create Legal Relations
The second essential element of a valid contract is that there must be
an intention among the parties that the agreement should be attached by
legal consequences and create legal obligations. If there is no such intention on the
part of the parties, there is no contract between them. Agreements of a social or
domestic nature do not contemplate legal relationship. As such they are not
contracts.
A proposal or an offer is made with a view to obtain the assent to the other
party and when that other party expresses his willingness to the act or
abstinence proposed, he accepts the offer and a contract is made between the
two. But both offer and acceptance must be made with the intention of creating
legal relations between the parties. The test of intention is objective. The Courts
seek to give effect to the presumed intention of the parties. Where necessary, the
Court would look into the conduct of the parties, for much can be inferred from the
conduct. The Court is not concerned with the mental intention of the parties,
but rather with what a reasonable man would say, was the intention of the
parties, having regard to all the circumstances of the case.
For example, if two persons agree to assist each other by rendering advice, in
the pursuit of virtue, science or art, it cannot be regarded as a contract. In commercial
and business agreements, the presumption is usually that the parties intended to
create legal relations. But this presumption is rebuttable which means that it must be
shown that the parties did not intend to be legally bound.

(c) Consideration
Need for Consideration
Consideration is one of the essential elements of a valid contract.
The requirement of consideration stems from the policy of extending the arm of the
law to the enforcement of mutual promises of parties. A mere promise is not
enforceable at law. For example, if A promises to make a gift of Rs. 500 to B,
and subsequently changes his mind, B cannot succeed against A for breach of
promise, as B has not given anything in return. It is only when a promise is made
for something in return from the promisee, that such promise can be enforced by
law against the promisor. This something in return is the consideration for the
promise.
Definition of Consideration
Sir Fredrick Pollock has defined consideration “as an act or forbearance of one
party, or the promise thereof is the price for which the promise of the other is bought”.
It is “some right, interest, profit, or benefit accruing to one party or
some forbearance, detriment, loss or responsibility, given, suffered or undertaken
by the other” (Currie v. Misa (1875) L.R. 10 Ex. 153).
Section 2(d) of the Indian Contract Act, 1872 defines consideration thus: “when at
the desire of the promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing
something, such act or abstinence or promise is called a consideration for the
promise”.
The fundamental principle that consideration is essential in every contract, is laid
down by both the definitions but there are some important points of difference
in respect of the nature and extent of consideration and parties to it under the
two systems of law:
(a) Consideration at the desire of the promisor: Section 2(d) of the Act begins
with the statement that consideration must move at the desire or request of
the promisor. This means that whatever is done must have been done at the
desire of the promisor and not voluntarily or not at the desire of a third party.
If A rushes to B’s help whose house is on fire, there is no consideration but a
voluntary act. But if A goes to B’s help at B’s request, there is good
consideration as B did not wish to do the act gratuitously.
(b) Consideration may move from the promisee or any other person: In
English law, consideration must move from the promisee, so that a
stranger to the consideration cannot sue on the contract. A person
seeking to enforce a simple contract must prove in court that he
himself has given the consideration in return for the promise he is seeking
to enforce.
In Indian law, however, consideration may move from the promisee or any
other person, so that a stranger to the consideration may maintain a suit. In
Chinnaya v. Ramaya, (1882) 4 Mad. 137, a lady by a deed of gift made over
certain property to her daughter directing her to pay an annuity to the donors
brother as had been done by the donor herself before she gifted the property. On
the same day, her daughter executed in writing in favour of the donors brother
agreeing to pay the annuity. Afterwards the donee (the daughter) declined to fulfil
her promise to pay her uncle saying that no consideration had moved from him.
The Court, however, held that the uncle could sue even though no part of the
consideration received by his niece moved from him. The consideration from her
mother was sufficient consideration.
Privity of Contract
A stranger to a contract cannot sue both under the English and Indian law for
want of privity of contract. The following illustration explains this point.
In Dunlop Pneumatic Tyre Co. v. Selfridge Ltd. (1915) A.C. 847, D supplied tyres
to a wholesaler X, on condition that any retailer to whom X re-supplied the tyres
should promise X, not to sell them to the public below Ds list price. X supplied tyres to
S upon this condition, but nevertheless S sold the tyres below the list price. Held:
There was a contract between D and X and a contract between X and S. Therefore,
D could not obtain damages from S, as D had not given any consideration for Ss
promise to X nor was he party to the contract between D and X.
Thus, a person who is not a party to a contract cannot sue upon it even though
the contract is for his benefit. A, who is indebted to B, sells his property to C, and C
the purchaser of the property, promises to pay off the debt to B. In case C fails to pay
B, B has no right to sue C for there is no privity of contract between B and C.
The leading English case on the point is Tweddle v. Atkinson (1861) 1B
and Section 393. In this case, the father of a boy and the father of a girl who was
to be married to the boy, agreed that each of them shall pay a sum of money to
the boy who was to take up the new responsibilities of married life. After the
demise of both the contracting parties, the boy (the husband) sued the executors of
his father-in-law upon the agreement between his father-in-law and his father. Held:
the suit was not maintainable as the boy was not a party to the contract.
 Exception to the doctrine of privity of contract: Both the Indian law and
the English law recognize certain exceptions to the rule that a stranger to a
contract cannot sue on the contract. In the following cases, a person who is not a
party to a contract can enforce the contract:
(i) A beneficiary under an agreement to create a trust can sue upon the
agreement, though not a party to it, for the enforcement of the trust so as to
get the trust executed for his benefit. In Khawaja Muhammad v. Hussaini
Begum, (1910) 32 All. 410, it was held that where a Mohammedan lady sued
her father-in- law to recover arrears of allowance payable to her by him under
an agreement between him and her own father in consideration of her
marriage, she could enforce the promise in her favour insofar as she was a
beneficiary under the agreement to make a settlement in her favour, and she
was claiming as beneficiary under such settlement.
(ii) An assignee under an assignment made by the parties, or by the operation
of law (e.g. in case of death or insolvency), can sue upon the contract for
the enforcement of his rights, tittle and interest. But a mere nominee (i.e.,
the person for whose benefit another has insured his own life) cannot sue
on the policy because the nominee is not an assignee.
(iii) In cases of family arrangements or settlements between male members of
a Hindu family which provide for the maintenance or expenses for marriages
of female members, the latter though not parties to the contract, possess
an actual beneficial right which place them in the position of beneficiaries
under the contract, and can therefore, sue.
(iv) In case of acknowledgement of liability, e.g., where A receives money from
B for paying to C, and admits to C the receipt of that amount, then A
constitutes himself as the agent of C.
(v) Whenever the promisor is by his own conduct estopped from denying
his liability to perform the promise, the person who is not a party to the
contract can sue upon it to make the promisor liable.
(vi) In cases where a person makes a promise to an individual for the benefit
of third party and creates a charge on certain immovable property for
the purpose, the third party can enforce the promise though, he is stranger
to the contract.
Kinds of Consideration
Consideration may be:
(a) Executory or future which means that it makes the form of promise to be
performed in the future, e.g., an engagement to marry someone; or
(b) Executed or present in which it is an act or forbearance made or suffered for
a promise. In other words, the act constituting consideration is wholly or
completely performed, e.g., if A pays today Rs. 100 to a shopkeeper for
goods which are promised to be supplied the next day, A has executed his
consideration but the shopkeeper is giving executory consideration—a
promise to be executed the following day. If the price is paid by the buyer and
the goods are delivered by the seller at the same time, consideration is
executed by both the parties.
(c) Past which means a past act or forbearance, that is to say, an act
 constituting consideration which took place and is complete (wholly
executed) before the promise is made.
According to English law, a consideration may be executory or executed
but never past. The English law is that past consideration is no consideration. The
Indian law recognizes all the above three kinds of consideration.
Rules Governing Consideration
(a) Every simple contact must be supported by valuable consideration otherwise
it is formally void subject to some exceptions.
(b) Consideration may be an act of abstinence or promise.
(c) There must be mutuality i.e., each party must do or agree to do something.
A gratuitous promise as in the case of subscription for charity, is
not enforceable. For example, where A promises to subscribe Rs. 5,000 for
the repair of a temple, and then refuses to pay, no action can be taken
against him.
(d) Consideration must be real, and not vague, indefinite, or illusory, e.g., a
son’s promise to “stop being a nuisance” to his father, being vague,
is no consideration.
(e) Although consideration must have some value, it need not be adequate i.e., a
full return for the promise. Section 25 (Exp. II) clearly provides that “an
agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate”. It is upon the parties to fix
their own prices. For example, where A voluntarily agreed to sell his motor
car for Rs. 500 to B, it became a valid contract despite the inadequancy of
the consideration.
(f) Consideration must be lawful, e.g., it must not be some illegal act such
as paying someone to commit a crime. If the consideration is unlawful,
the agreement is void.
(g) Consideration must be something more than the promisee is already
bound to do for the promisor. Thus, an agreement to perform an existing
obligation made with the person to whom the obligation is already owed, is
not made for consideration. For example, if a seaman deserts his ship so
breaking his contract of service and is induced to return to his duty by
the promise for extra wages, he cannot later sue for the extra wages since
he has only done what he had already contracted for: Stilk v. Myrick (1809).
When Consideration not Necessary
The general rule is that an agreement made without consideration is void.
But Section 25 of the Indian Contract Act lays down certain exceptions which
make a promise without consideration valid and binding. Thus, an agreement
without consideration is valid:
1. If it is expressed in writing and registered and is made out of natural love and
affection between parties standing in a near relation to each other; or
2. If it is made to compensate a person who has already done
something voluntarily for the promisor, or done something which the
promisor was legally compellable to do; or
3. If it is a promise in writing and signed by the person to be charged therewith,
 or by his agent, to pay a debt barred by the law of limitation.
4. Besides, according to Section 185 of the Indian Contract Act, consideration is
not required to create an agency.
5. In the case of gift actually made, no consideration is necessary. There
need not be nearness of relation and even if it is, there need not be any
natural love and affection between them.
The requirements in the above exceptions are noteworthy. The first one
requires written and registered promise. The second may be oral or in writing and
the third must be in writing.
Illustrations
A, for natural love and affection, promises to give his son B Rs. 10,000. A put his
promise to B into writing and registered it. This is a contract.
A registered agreement between a husband and his wife to pay his earnings to
her is a valid contract, as it is in writing, is registered, is between parties standing in
near relation, and is for love and affection (Poonoo Bibi v. Fyaz Buksh, (1874) 15
Bom L.R. 57).
But where a husband by a registered document, after referring to quarrels
and disagreement between himself and his wife, promised to pay his wife a sum of
money for her maintenance and separate residence, it was held that the
promise was unenforceable, as it was not made for love and affection (Rajluckhy
Deb v. Bhootnath (1900) 4 C.W.N. 488).

Whether Gratuitous Promise can be Enforced

A gratuitous promise to subscribe to a charitable cause cannot be enforced, but if
the promisee is put to some detriment as a result of his acting on the faith of the
promise and the promisor knew the purpose and also knew that on the faith of the
subscription an obligation might be incurred, the promisor would be bound by
promise (Kedar Nath v. Gorie Mohan 64).
It may be noted that it is not necessary that the promisor should benefit by
the consideration, it is sufficient if the promisee does some act from which a third
person is benefited and he would not have done that act but for the promise of the
promisor.
For example, Y requests X for loan, who agrees to give loan to Y if S
gives guarantee of repayment of the loan. S gives such a guarantee of repayment
by Y. Thereupon X gives loan to Y. Here S will be promisor and X the promisee,
but from X’s action, benefit is derived by Y and not by S. X would not have given the
loan to Y had S not given the guarantee of repayment of loan. Thus, the benefit
conferred on Y by X at the request of S is a sufficient consideration on the part of
X as against the promise of S to repay the loan. Alternatively, it may be said that
the detriment which X suffered by giving loan to Y at the request of S is sufficient
consideration on the part of X in respect of the promise of S to repay the loan.
Consideration therefore, is some detriment to the promisee or some benefit to
the promisor. Detriment to one person and benefit to the other are the same
things looked from two angles. Ordinarily a promisor is not bound by his promise,
unless some consideration is offered by the promisee.
Terms Must be Certain
It follows from what has been explained in relation to offer, acceptance
and consideration that to be binding, an agreement must result in a contract. That
is to say, the parties must agree on the terms of their contract. They must make
their intentions clear in their contract. The Court will not enforce a contract the
terms of which are uncertain. Thus, an agreement to agree in the future (a contract
to make a contract) will not constitute a binding contract e.g., a promise to pay
an actress a salary to be “mutually agreed between us” is not a contract since the
salary is not yet agreed: Loftus v. Roberts (1902).
Similarly, where the terms of a final agreement are too vague, the contract will fail
for uncertainty. Hence, the terms must be definite or capable of being made definite
without further agreement of the parties.
The legal maxim, therefore, is “a contract to contract is not a contract”. If
you agree “subject to contract” or “subject to agreement”, the contract does not
come into existence, for there is no definite or unqualified acceptance.
Resume
Thus, a contract is always based upon:
(i) Agreement (consensus ad idem) an unqualified acceptance of a definite
offer;
(ii) An intent to create legal obligations; and
(iii) Consideration.

FLAWS IN CONTRACT
There may be the circumstances under which a contract made under these
rules may still be bad, because there is a flaw, vice or error somewhere. As a result
of such a flaw, the apparent agreement is not a real agreement.
Where there is no real agreement, the law has three remedies:
Firstly: The agreement may be treated as of no effect and it will then be known as
void agreement.
Secondly: The law may give the party aggrieved the option of getting out of his
bargain, and the contract is then known as voidable.
Thirdly: The party at fault may be compelled to pay damages to the other party.
(a) Void Agreement
A void agreement is one which is destitute of all legal effects. It cannot
be enforced and confers no rights on either party. It is really not a contract at all,
it is non-existent. Technically the words ‘void contract’ are a contradiction in
terms. But the expression provides a useful label for describing the situation that
arises when a ‘contract’ is claimed but in fact does not exist. For example, a minors
contract is void.
(b) Voidable Contract
A voidable contract is one which a party can put to an end. He can exercise his
option, if his consent was not free. The contract will, however be binding, if he does
not exercise his option to avoid it within a reasonable time. The consent of a party
is not free and so he is entitled to avoid the contract, if he has given
misrepresentation, fraud, coercion or undue influence.
(c) Illegal Agreement
An illegal agreement is one which, like the void agreement has no legal effects
as between the immediate parties. Further, transactions collateral to it also
become tainted with illegality and are, therefore, not enforceable. Parties to an
unlawful agreement cannot get any help from a Court of law, for no polluted hands
shall touch the pure fountain of justice. On the other hand, a collateral
transaction can be supported by a void agreement.
For example, one party may have deceived the other party, or in some other
way there may be no genuine consent. The parties may be labouring under a
mistake, or one or both the parties may be incapable of making a contract. Again,
the agreement may be illegal or physically impossible. All these are called “the
FLAWS in contract or the VICES of contract”.
The chief flaws in contract are:
(i) Incapacity
(ii) Mistake
(iii) Misrepresentation
(iv) Fraud
(v) Undue Influence
(vi) Coercion
(vii) Illegality
(viii) Impossibility.

(i) Flaw in Capacity  Capacity and Persons

In law, persons are either natural or artificial. Natural persons are human
beings and artificial persons are corporations. Contractual capacity or
incapacity is an incident of personality.
The general rule is that all natural persons have full capacity to make binding
contracts. But the Indian Contract Act, 1872 admits an exception in the case of:
(i) minors,
(ii) lunatics, and
(iii) persons disqualified from contracting by any law to which they are subject.
These persons are not competent to contract. Section 11 provides that
every “person is competent to contract who is of the age of majority according to the
law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject”. A valid agreement
requires that both the parties should understand the legal implications of their
conduct. Thus, both must have a mature mind. The legal yardstick to measure
maturity according to the law of contract is, that both should be major and of
sound mind and if not, the law would presume that the maturity of their mind has
not reached to the extent of visualising
the pros and cons of their acts, hence, a bar on minors and lunatics competency to
contract.
The contractual capacity of a corporation depends on the manner in which it was
created.
Minor’s Contract
According to the Indian Majority Act, 1875, a minor is a person, male or
female, who has not completed the age of 18 years. In case a guardian has been
appointed to the minor or where the minor is under the guardianship of the Court of
Wards, the person continues to be a minor until he completes his age of 21 years.
According to the Indian Contract Act, no person is competent to enter into a contract
who is not of the age of majority. It was finally laid down by the Privy Council in the
leading case of Mohiri Bibi v. Dharmodas Ghose, (1903) 30 Cal. 539, that a minor
has no capacity to contract and minors contract is absolutely void. In this case, X, a
minor borrowed Rs. 20,000 from Y, a money lender. As a security for the money
advanced, X executed a mortgage in Y’s favour. When sued by Y, the Court held
that the contract by X was void and he cannot be compelled to repay the amount
advanced by him.
Indian Courts have applied this decision to those cases where the minor
has incurred any liability or where the liabilities on both sides are outstanding. In
such cases, the minor is not liable. But if the minor has carried out his part of the
contract, then, the Courts have held, that he can proceed against the other party.
The rationale is to protect minors interest. According to the Transfer of Property Act,
a minor cannot transfer property but he can be a transferee (person accepting a
transfer). This statutory provision is an illustration of the above principle.
The following points must be kept in mind with respect to minors contract:
(a) A minor’s contract is altogether void in law, and a minor cannot bind
himself by a contract. If the minor has obtained any benefit, such as
money on a mortgage, he cannot be asked to repay, nor can his
mortgaged property be made liable to pay.
(b) Since the contract is void ab initio, it cannot be ratified by the minor on
attaining the age of majority.
(c) Estoppel is an important principle of the law of evidence. To explain,
suppose X makes a statement to Y and intends that the latter should
believe and act upon it. Later on, X cannot resile from this statement and
make a new one.
In otherwords, X will be estopped from denying his previous statement. But
a minor can always plead minority and is not estopped from doing so
even where he had produced a loan or entered into some other contract by
falsely representing that he was of full age, when in reality he was a minor.
But where the loan was obtained by fraudulent representation by the minor
or some property was sold by him and the transactions are set aside as being void,
the Court may direct the minor to restore the property to the other party.
For example, a minor fraudulently overstates his age and takes delivery of
a motor car after executing a promissory note in favour of the trader for its price.
The minor cannot be compelled to pay the amount to the promissory note, but the
Court on equitable grounds may order the minor to return the car to the trader, if it
is still with the minor.
 Thus, according to Section 33 of the Specific Relief Act, 1963 the Court may, if
the minor has received any benefit under the agreement from the other party require
him to restore, so far as may be such benefit to the other party, to the extent to which
he or his estate has been benefited thereby.
(d) A minors estate is liable to pay a reasonable price for necessaries supplied to
him or to anyone whom the minor is bound to support (Section 68 of the Act).
The necessaries supplied must be according to the position and status in life of
the minor and must be things which the minor actually needs. The following have also
been held as necessaries in India.
Costs incurred in successfully defending a suit on behalf of a minor in which
his property was in jeopardy; costs incurred in defending him in a prosecution;
and money advanced to a Hindu minor to meet his marriage expenses have been
held to be necessaries.
(e) An agreement by a minor being void, the Court will never direct specific
performance of the contract.
(f) A minor can be an agent, but he cannot be a principal nor can he be a
partner. He can, however, be admitted to the benefits of a partnership.
(g) Since a minor is never personally liable, he cannot be adjudicated as an
insolvent.
(h) An agreement by a parent or guardian entered into on behalf of the minor
is binding on him provided it is for his benefit or is for legal necessity. For,
the guardian of a minor, may enter into contract for marriage on behalf of
the minor, and such a contract would be good in law and an action for its
breach would lie, if the contract is for the benefit of the minor (Rose
Fernandez v. Joseph Gonsalves, 48 Bom. L. R. 673) e.g., if the
parties are of the community among whom it is customary for parents to
contract marriage for their children. The contract of apprenticeship is also
binding.
However, it has been held that an agreement for service, entered into by
a father on behalf of his daughter who is a minor, is not enforceable at law
(Raj Rani v. Prem Adib, (1948) 51 Bom. L.R. 256).
Lunatics Agreement (Section 2)
A person of unsound mind is a lunatic. That is to say for the purposes of
making contract, a person is of unsound mind if at the time when he makes the
contract, he is incapable of understanding it and of forming rational judgment as to
its effect upon his interests.
A person unsound mind cannot enter into a contract. A lunatics agreement
is therefore void. But if he makes a contract when he is of sound mind, i.e., during
lucid intervals, he will be bound by it.
A sane man who is delirious from fever, or who is so drunk that he
cannot understand the terms of a contract, or form a rational judgement as to its
effect on his interests cannot contract whilst such delirium or state of drunkenness
lasts. A person under the influence of hypnotism is temporarily of unsound
mind. Mental decay brought by old age or disease also comes within the definition.
Agreement by persons of unsound mind are void. But for necessaries supplied to
a lunatic or to any member of his family, the lunatics estate, if any, will be liable.
There is no personal liability incurred by the lunatic.
If a contract entered into by a lunatic or person of unsound mind is for his benefit,
it can be enforced (for the benefit) against the other party (Jugal Kishore v. Cheddu,
(1903) l All. L.J 43).
Persons Disqualified from Entering into Contract
Some statues disqualify certain persons governed by them, to enter into
a contract. For example, Oudh Land Revenue Act provides that where a person
in Oudh is declared as a ‘disqualified proprietor under the Act, he is incompetent
to alienate his property.
Alien Enemies
A person who is not an Indian citizen is an alien. An alien may be either an
alien friend or a foreigner whose sovereign or State is at peace with India, has
usually contractual capacity of an Indian citizen. On the declaration of war
between his country and India he becomes an alien enemy. A contract with an
alien enemy becomes unenforceable on the outbreak of war.
For the purposes of civil rights, an Indian citizen of the subject of a neutral
state who is voluntarily resident in hostile territory or is carrying on business there
is an alien enemy. Trading with an alien enemy is considered illegal, being against
public policy.
Foreign Sovereigns and Ambassadors
Foreign sovereigns and accredited representatives of foreign states,
i.e., Ambassadors, High Commissioners , enjoy a special privilege in that they
cannot be sued in Indian Courts, unless they voluntarily submit to the jurisdiction of
the Indian Courts. Foreign Sovereign Governments can enter into contracts
through agents residing in India. In such cases the agent becomes personally
responsible for the performance of the contracts.
Professional Persons
In England, barristers-at law are prohibited by the etiquette of their
profession from suing for their fees. So also are the Fellow and Members of the
Royal College of Physicians and Surgeons. But they can sue and be sued for all
claims other than their professional fees. In India, there is no such disability and a
barrister, who is in the position of an advocate with liberty both to act and plead,
has a right to contract and to sue for his fees (Nihal Chand v. Dilawar Khan, 1933
All. L.R. 417).
Corporations
A corporation is an artificial person created by law, e.g., a company
registered under the Companies Act, public bodies created by statute, such as
Municipal Corporation of Delhi. A corporation exists only in contemplation of law
and has no physical shape or form.
The Indian Contract Act does not speak about the capacity of a corporation
to enter into a contract. But if properly incorporated, it has a right to enter
into a contract. It can sue and can be sued in its own name. There are some
contracts into which a corporation cannot enter without its seal, and others not at
all. A company,
for instance, cannot contract to marry. Further, its capacity and powers to
contract are limited by its charter or memorandum of association. Any contract
beyond such power in ultra vires and void.
Married Women
In India there is no difference between a man and a woman regarding
contractual capacity. A woman married or single can enter into contracts in the
same ways as a man. She can deal with her property in any manner she likes,
provided, of course, she is a major and is of sound mind.
Under the English law, before the passing of the Law Reform (Married
Women and Tortfeasors) Act, 1935, a husband was responsible for his wifes
contracts but since 1935 this liability no longer arises unless the wife is acting as
the husbands agent. Now, therefore, even in England a married woman has
full contractual capacity, and can sue and be sued in her own name.
Flaw in Consent
The basis of a contract is agreement, i.e., mutual consent. In other words,
the parties should mean the something in the same sense and agree voluntarily.
It is when there is consent, that the parties are said to be consensus ad idem i.e.
their minds have met. Not only consent is required but it must be a free consent.
Consent is not free when it has been caused by coercion, undue influence,
misrepresentation, fraud or mistake. These elements if present, may vitiate the
contract.
When this consent is wanting, the contract may turn out to be void or
voidable according to the nature of the flaw in consent. Where there is no consent,
there can be no contract as in the case of mutual mistake. Where there is consent,
but it is not free, a contract is generally voidable at the option of the party whose
consent is not free. In the case of misrepresentation, fraud, coercion, undue
influence, the consent of one of the parties is induced or caused by the supposed
existence of a fact which did not exist.

(ii) Mistake (Sections 20 and 21)

The law believes that contracts are made to be performed. The whole structure
of business depends on this as the businessmen depend on the validity of
contracts. Accordingly, the law says that it will not aid any one to evade
consequences on the plea that he was mistaken.
On the other hand, the law also realises that mistakes do occur, and that
these mistakes are so fundamental that there may be no contract at all. If
the law recognises mistake in contract, the mistake will render the contract void.
Effect of Mistake
A mistake in the nature of miscalculation or error of judgement by one or both
the parties has no effect on the validity of the contract. For example, if A
pays an excessive price for goods under a mistake as to their true value, the
contract is binding on him (Leaf v. International Galleries (1950) 1 All E.R. 693).
Therefore, mistake must be a “vital operative mistake”, i.e. it must be a mistake of
fact which is fundamental to contract.
To be operative so as to render the contract void, the mistake must be:
 (a) of fact, and not of law or opinion;
(b) the fact must be essential to agreement, i.e., so fundamental as to negative
the agreement; and
(c) must be on the part of both the parties.
Thus, where both the parties to an agreement are under a mistake as to a matter
of fact essential to agreement, the agreement is void (Section 20). Such a mistake
prevents the formation of any contract at all and the Court will declare it void. For
example, A agrees to buy from B a certain horse. It turns out that the horse was dead
at the time of bargain though neither party was aware of the fact. The agreement is
void.
Mistake of Law and Mistake of Fact
Mistakes are of two kinds: (i) mistake of law, and (ii) mistake of fact. If there is
a mistake of law of the land, the contract is binding because everyone is deemed
to have knowledge of law of the land and ignorance of law is no excuse (ignorantia
juris non-excusat).
But mistake of foreign law and mistake of private rights are treated as mistakes of
fact and are execusable.
The law of a foreign country is to be proved in Indian Courts as ordinary facts.
So mistake of foreign law makes the contract void. Similarly, if a contract is
made in ignorance of private right of a party, it would be void, e.g., where A buys
property which already belongs to him.
Mutual or Unilateral Mistake
Mistake must be mutual or bilateral, i.e., it must be on the part of both parties.
A unilateral mistake, i.e., mistake on the part of only one party, is generally of no
effect unless (i) it concerns some fundamental fact and (ii) the other party is aware
of the mistake. For this reason, error of judgement on the part of one of the parties
has no effect and the contract will be valid.
Mutual or Common Mistake as to Subject-matter
A contract is void when the parties to it assume that a certain state of things
exist which does not actually exist or in their ignorance the contract means one
thing to one and another thing to the other, and they contract subject to that
assumption or under that ignorance. There is a mistake on the part of both the
parties. Such a mistake may relate to the existence of the subject matter, its
identity, quantity or quality.
(a) Mistake as to existence of the subject matter: Where both parties believe
the subject matter of the contract to be in existence but in fact, it is
not in existence at the time of making the contract, there is mistake
and the contract is void.
In Couturier v. Hastie (1857), there was a contact to buy cargo described
as shipped from port A to port B and believed to be at sea which in fact got
lost earlier unknown to the parties and hence not in existence at the time
of the contract. Held, the contract was void due to the parties mistake.
(b) Mistake as to identity of the subject matter: Where the parties are not in
agreement to the identity of the subject matter, i.e., one means one thing and
 the other means another thing, the contract is void; there is no consensus ad
idem.
In Raffles v. Wichelhous (1864), A agreed to buy from B a cargo of cotton
to arrive “ex Peerless from Bombay”. There were two ships called
“Peerless” sailing from Bombay, one arriving in October and the other in
December. A meant the earlier ship and B the latter. Held, the contract
was void for mistake.
(c) Mistake as to quantity of the subject matter: There may be a mistake as
to quantity or extent of the subject matter which will render the contract
void even if the mistake was caused by the negligence of a third-party.
In Henkel v. Pape (1870), P wrote to H inquiring the price of rifles
and suggested that he might buy as many as fifty. On receipt of a reply he
wired send three rifles. Due to the mistake of the telegraph clerk the
message transmitted to H was send the rifles. H despatched 50 rifles. Held,
there was no contract between the parties.
(d) Mistake as to quality of the subject-matter or promise: Mistake as to
quality raises difficult questions. If the mistake is on the part of both the
parties the contract is void. But if the mistake is only on the part of one
party difficulty arises.
The general rule is that a party to a contract does not owe any duty to the
other party to discloses all the facts in his possession during negotiations. Even if he
knows that the other party is ignorant of or under some misapprehension as to an
important fact, he is under no obligation to enlighten him. Each party must
protect his own interests unaided. In contract of sale of goods, this rule is summed
up in the maxim caveat emptor (Let the buyer beware.) The seller is under no
duty to reveal the defects of his goods to the buyer, subject to certain conditions.
Unilateral Mistake as to Nature of the Contract
The general rule is that a person who signs an instrument is bound by its
terms even if he has not read it. But a person who signs a document under a
fundamental mistake as to its nature (not merely as to its contents) may have it
avoided provided the mistake was due to either-
(a) the blindness, illiteracy, or senility of the person signing, or
(b) a trick or fraudulent misrepresentation as to the nature of the document.
In Foster v. Mackinnon (1869), M, a senile man of feeble sight, endorsed a bill
of exchange for  3,000 thinking it was a guarantee. Held, there was no contract and
no liability was incurred by the signature. But if M knew that the document whereon
he put his signature was a bill of exchange, he cannot avoid it on the ground that
he believed that the bill was for  30 only. In the former case, he was mistaken as to
the nature or character of the document. In the latter case he was mistaken as to
the contents of the document.
Unilateral Mistake as to the Identity of the Person Contracted With
It is a rule of law that if a person intends to contract with A, B cannot give
himself any right under it. Hence, when a contract is made in which
personalities of the contracting parties are or may be of importance, no other
person can interpose and
adopt the contract. For example, where M intends to contract only with A but
enters into contract with B believing him to be A, the contract is vitiated by mistake
as there is no consensus ad idem.
Mistake as to the identity of the person with whom the contract is made will
operate to nullify the contract only if:
(i) the identity is for material importance to the contracts; and
(ii) the mistake is known to the other person, i.e., he knows that it is not intended
that he should become a party to the contract.
In Cundy v. Lindsay [(1878) 3 A.C. 459, one Blenkarn posing as a reputed
trader Blankiron, placed an order for some goods with M/s Lindsay and Co. The
company, thought that it is dealing with Blankiron and supplied the goods.
Blenkarn sold the goods to Cundy and did not pay to Lindsay. The latter sued
Cundy. The Court held that there was no contract between Lindsay and Blenkarn and
therefore Cundy has no title to the goods.
(iii) Misrepresentation (Section 18)
The term “misrepresentation” is ordinarily used to connote both
“innocent misrepresentation” and “dishonest misrepresentation”.
Misrepresentation may, therefore, be either (i) Innocent misrepresentation, or (ii)
Wilful misrepresentation with intent to deceive and is called fraud.
Innocent Misrepresentation
If a person makes a representation believing what he says is true he
commits innocent misrepresentation. Thus, any false representation, which is
made with an honest belief in its truth is innocent. The effect of innocent
misrepresentation is that the party misled by it can avoid the contract, but cannot
sue for damages in the normal circumstances.
But in order to avoid a contract on the ground of misrepresentation, it is
necessary to prove that:
(i) there was a representation or assertion,
(ii) such assertion induced the party aggrieved to enter into the contract.
(iii) the assertion related to a matter of fact ( and not of law as ignorance of law is
no excuse).
(iv) the statement was not a mere opinion or hearsay, or commendation
(i.e., reasonable praise). For example an advertisement saying, “washes
whiter than the whitest".
(v) the statement which has become or turned out to be untrue, was made with
an honest belief in its truth.
Damages for Innocent Misrepresentation
Generally the injured party can only avoid the contract and cannot get damages
for innocent misrepresentation. But in the following cases, damages are obtainable:
(i) From a promoter or director who makes innocent misrepresentation in
a company prospectus inviting the public to subscribe for the shares in
the company;
(ii) Against an agent who commits a breach of warranty of authority:
 (iii) From a person who (at the Courts discretion) is estopped from denying
a statement he has made where he made a positive statement intending
that it should be relied upon and the innocent party did rely upon it and
thereby suffered damages;
(iv) Negligent representation made by one person to another between whom a
confidential relationship, like that of a solicitor and client exists.
(iv) Wilful Misrepresentation or Fraud (Section 17)
Fraud is an untrue statement made knowingly or without belief in its truth
or recklessly, carelessly, whether it be true or false with the intent to deceive. The
chief ingredients of a fraud are:
(i) a false representation or assertion;
(ii) of fact (and not a mere opinion),
(iii) made with the intention that it should be acted upon,
(iv) the representation must have actually induced the other party to enter into
the contract and so deceived him,
(v) the party deceived must thereby be damnified, for there is no fraud without
damages, and
(vi) the statement must have been made either with the knowledge that it
was false or without belief in its truth or recklessly without caring whether it
was true or false.
It is immaterial whether the representation takes effect by false statement or with
concealment. The party defrauded can avoid the contract and also claim damages.
Mere silence as to facts likely to affect the willingness of a person to enter into
a contract is not fraud, unless silence is in itself equivalent to speech, or where it is
the duty of the person keeping silent to speak as in the cases of contracts uberrimae
fidei - (contracts requiring utmost good faith).
Contracts Uberrimae Fidei
There are contracts in which the law imposes a special duty to act with
the utmost good faith i.e., to disclose all material information. Failure to disclose
such information will render the contract voidable at the option of the other party.
Contracts uberrimae fidei are:
(a) Contract of insurance of all kinds: The assured must disclose to the insurer
all material facts and whatever he states must be correct and truthful.
(b) Company prospectus: When a company invites the public to subscribe for its
shares, it is under statutory obligation to disclose truthfully the various
matters set out in the Companies Act. Any person responsible for non-
disclosure of any of these matters is liable to damages. Also, the contract to
buy shares is voidable where there is a material false statement or non-
disclosure in the prospectus.
(c) Contract for the sale of land: The vendor is under a duty to the purchaser to
show good title to the land he has contracted to sell.
(d) Contracts of family arrangements: When the members of a family make
 agreements or arrangements for the settlement of family property,
each member of the family must make full disclosure of every material fact
within his knowledge.
Difference between Fraud and Innocent Misrepresentation
1. Fraud implies an intent to deceive, which is lacking if it is innocent
misrepresentation.
2. In case of misrepresentation and fraudulent silence, the defendant can take
a good plea that the plaintiff had the means of discovering the truth
with ordinary diligence. This argument is not available if there is fraud
(Section 19-exception).
3. In misrepresentation the plaintiff can avoid or rescind the contract. In fraud,
the plaintiff can claim damages as well.
4. If there is fraud, it may lead to prosecution for an offence of cheating under
the Indian Penal Code.
(v) Coercion
Coercion as defined in Section 15 means “the committing or threatening
to commit any act forbidden by the Indian Penal Code, or unlawful detaining
or threatening to detain, any property to the prejudice of any person whatever with
the intention of causing any person to enter into an agreement”. Simply stated, the
doing of any act forbidden by the Indian Penal Code is coercion even though such
an act is done in a place where the Indian Penal Code is not in force. If A at the
point of a pistol asks B to execute a promissory note in his favour and B to save his
life does so he can avoid this agreement as his consent was not free. Even a threat
to third-party, e.g., where A compels B to sign a document threatening to harm C,
in case B does not sign would also amount to coercion.
It has been held that mere threat by one person to another to prosecute him does
not amount to coercion. There must be a contract made under the threat and that
contract should be one sought to be avoided because of coercion (Ramchandra v.
Bank of Kohlapur, 1952 Bom. 715). It may be pointed out that coercion may proceed
from any person and may be directed against any person, even a stranger and also
against goods, e.g., by unlawful detention of goods.

(vi) Undue Influence

Under Section 16 of the Indian Contract Act, 1872, a contract is said to
be produced by undue influence “where the relations subsisting between the parties
are such that one of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other”.
The elements of undue influence are (i) a dominant position, and (ii) the use of it
to obtain an unfair advantage. The words “unfair advantage” do not limit the
jurisdiction to cases where the transaction would be obviously unfair as between
persons dealing on an equal footing. In the words of Lord Kingston, “the principle
applies to every case where influence is acquired and abused where confidence is
reposed and betrayed”.
Sub-section (2) of Section 16 provides that a person is deemed to be in a
position to dominate the will of another—
(a) Where he holds a real or apparent authority over the other or where he
stands in a fiduciary relation to the other, e.g., minor and guardian; trustee
and beneficiary; solicitor and client. There is, however, no presumption of
undue influence in the relation of creditor and debtor, husband and wife
(unless the wife is a parda-nishin woman) and landlord and tenant. In these
cases the party has to prove that undue influence has been exercised on
him, there being no presumption as to existence of undue influence.
(b) Where he makes a contract with a person whose mental capacity
is temporarily or permanently affected by reason of age, illness or mental
or bodily distress e.g., doctor and patient.
Illustration
A, having advanced money to his son B, during his minority, upon B’s coming
of age obtains, by misuse of parental influence a bond upon B for a greater amount
than the sum due in respect of the advance. A employs undue influence.
A, a man enfeebled by disease or age is induced by B’s influence over him as
his medical attendant, to agree to pay B an unreasonable sum for his
professional services. B employs undue influence.
A parent stands in a fiduciary relation towards his child and any
transaction between them by which any benefit is procured by the parent to himself
or to a third party, at the expense of the child will be viewed with jealousy by Courts
of Equity and the burden will be on the parent or third-party claiming the benefit of
showing that the child while entering into the transaction had independent advice,
that he thoroughly understood the nature of transaction and that he was
removed from all undue influence when the gift was made (Marim Bibi v. Cassim
Ebrahim (1939) 184 I.C. 171 (1939) A.I.R. 278).
Where there is a presumption of undue influence, the presumption can be
rebutted by showing that
(i) full disclosure of all material facts was made,
(ii) the consideration was adequate, and
(iii) the weaker party was in receipt of independent legal advice.
Transaction with parda-nishin women
The expression ‘parda-nishin denotes complete seclusion. Thus, a woman
who goes to a Court and gives evidence, who fixes rents with tenants and collects
rents, who communicates when necessary, in matters of business, with men
other than members of her own family, could not be regarded as a parda-nishin
woman (Ismail Musafee v. Hafiz Boo (1906) 33 Cal. LR 773 and 33 I.A. 86). The
principles to be applied to transactions with parda-nishin woman are founded on
equity and good conscience and accordingly a person who contracts with parda-
nishin woman has to prove that no undue influence was used and that she had
free and independent advice, fully understood the contents of the contract and
exercised her free will. “The law throws around her a special cloak of protection”
(Kali Baksh v. Ram Gopal (1914) L.R. 41 I.A. 23, 28-29, 36 All 81, 89).
Unconscionable transactions: An unconscionable transaction is one which makes
an exorbitant profit of the others distress by a person who is in a dominant
position. Merely the fact that the rate of interest is very high in a money lending
transaction shall not make it unconscionable. But if the rate of interest is very
exorbitant and the Court regards the transaction unconscionable, the burden of
proving that no undue influence was exercised lies on the creditor. It has been
held that urgent need of money on the part of the borrower does not itself place
the lender in a position to dominate his will within the meaning of this Section
(Sunder Koer v. Rai Sham Krishen (1907) 34 Cal. 150, C.R. 34 I.A. 9).

(vii) Legality of Object

One of the requisites of a valid contract is that the object should be
lawful. Section 10 of the Indian Contract Act, 1872, provides, “All agreements are
contracts if they are made by free consent of parties competent to contract
for a lawful consideration and with a lawful object...” Therefore, it follows
that where the consideration or object for which an agreement is made is
unlawful, it is not a contract.
Section 23 of the Indian Contract Act, 1872 provides that the consideration or
object of an agreement is lawful unless it is
(i) forbidden by law; or
(ii) it is of such nature that if permitted it would defeat the provisions of law; or
(iii) is fraudulent; or
(iv) involves or implies injury to the person or property of another; or
(v) the Court regards it an immoral or opposed to public policy.
In each of these cases the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is void.
Illustration
(i) X, Y and Z enter into an agreement for the division among them of gains
acquired by them by fraud. The agreement is void as its object is unlawful.
(ii) X promises to obtain for Y an employment in the Government service and
Y promises to pay Rs. 1,500 to X. The agreement is void, as the
consideration for it is unlawful.
(iii) X promises to Y to drop a prosecution which he has instituted against Y
for robbery, and Y promises to restore the value of the things taken.
The agreement is void as its object is unlawful.
(iv) A who is B’s mukhtr promises to exercise his influence, as such, with B
in favour of C and C promises to pay Rs. 1,000 to A. The agreement is
void because it is immoral.
(v) A agrees to let her daughter to hire to B for concubinage. The agreement
is void because it is immoral though, the letting may not be punishable
under the India Penal Code.
(vi) An agreement by the proprietors of a newspaper to indemnify the
printers against claims arising from libels printed in the newspaper is void as
it implies or involves injury to the person of another.
Void and Illegal Contracts
A void contract is one which is destitue of legal effects altogether. An
illegal contract too has no legal effect as between the immediate parties to the
contract, but has the further effect of tainting the collateral contracts also with
illegality. For instance A borrows from B to Rs. 1,000 for lending to C a minor.
The contract between A and C is void, but B can nevertheless recover the money
from A, On the other hand, if A had borrowed Rs. 1,000 from B to buy a pistol
to shoot C, the question whether B can recover the money hinges on whether B
was aware of the purpose for which money was borrowed. If B had knowledge of
the illegal purpose, he cannot recover. Therefore, it may be said that all illegal
agreements are void but all void agreements are not necessarily illegal.
Consequence of Illegal Agreements
(i) an illegal agreement is entirely void;
(ii) no action can be brought by a party to an illegal agreement. The maxim is
“Ex turpi cause non-oritur action” - from an evil cause, no action arises;
(iii) money paid or property transferred under an illegal agreement cannot
be recovered. The maxim is in parti delicto potier est conditio defendeties
- In cases of equal guilt, more powerful is the condition of the defendant;
(iv) where an agreement consist of two parts, one part legal and other illegal, and
the legal parts is separable from the illegal one, then the Court will enforce
the legal one. If the legal and the illegal parts cannot be separated the whole
agreement is illegal; and
(v) any agreement which is collateral to an illegal agreement is also tainted
with illegality and is treated as being illegal, even though it would have
been lawful by itself (Film Pratapchand v. Firm Kotri Re. AIR (1975) S.C.
1223).

Exception to General Rule of no Recovery of Money or Property

In the following cases, a party to an illegal agreement may sue to recover money
paid or property transferred:
(a) Where the transfer is not in pari delicto (equally guilty) with the detendant,
i.e. the transferee. For example, where A is induced to enter into an
illegal agreement by the fraud of B, A may recover the money paid if he
did not know that the contract was illegal.
(b) If the plaintiff can frame a cause of action entirely dependent of the contract.
(c) Where a substantial part of the illegal transaction has not been carried
out and the plaintiff is truly and genuinely repentant. (Bigos v. Bonstead
(1951), All E.R. 92).

Immoral Agreements
An agreement is illegal if its object is immoral or where its consideration is an act
of sexual immorality, e.g., an agreement for future illicit co-habitation, the agreement
is illegal and so unenforceable. Similarly, where the purpose of the agreement is the
furtherance of sexual immorality and both the parties know this, it is illegal. Where A
let a taxi on hire to B, a prostitute, knowing that it was to be used for immoral
purposes, it was held that A could not recover the hire charges. (Pearce v. Brookes
(1866) L.R. 1 Exch 213).
Agreements Void as being Opposed to Public Policy
The head public policy covers a wide range of topics. Agreements may
offend public policy by tending to the prejudice of the State in times of war, by
tending to the abuse of justice or by trying to impose unreasonable and inconvenient
restrictions on the free choice of individuals in marriage, or their liberty to exercise
lawful trade or calling. The doctrine of public policy is a branch of Common Law
and like any other branch of Common Law it is governed by the precedents
[Gherulal Parakh v. Mahadeodas Maiya (1959) 2 S.C.R. (Suppl.) 406; AIR 1959
S.C. 781]. The doctrine of public policy is not to be extended beyond the classes of
cases already covered by it and no Court can invent a new head of public policy
[Lord Halsbury, Janson v. Driefontien Consolidated Mines (1902) A.C. 484, 491]. It
has been said by the House of Lords that public policy is always an unsafe and
treacherous ground for legal decisions. Even if it is possible for Courts to evolve
a new head of public policy, it should be done under extraordinary circumstances
giving rise to incontestable harm to the society.
The following agreement are void as being against public policy but they are not
illegal:
(a) Agreement in restrain of parental rights: An agreement by which a party
deprives himself of the custody of his child is void.
(b) Agreement in restraint of marriage: An agreement not to marry at all or not
to marry any particular person or class of persons is void as it is in
restraint of marriage.
(c) Marriage brocage or brokerage Agreements: An agreement to
procure marriage for reward is void. Where a purohit (priest) was promised
Rs. 200 in consideration of procuring a wife for the defendant, the
promise was held void as opposed to public policy, and the purohit
could not recover the promised sum.
(d) Agreements in restraint of personal freedom are void: Where a man
agreed with his money lender not to change his residence, or his
employment or to part with any of his property or to incur any obligation
on credit without the consent of the money lender, it was held that the
agreement was void.
(e) Agreement in restraint of trade: An agreement in restraint of trade is one
which seeks to restrict a person from freely exercising his trade or profession.

AGREEMENTS IN RESTRAINT OF TRADE VOID

Section 27 of the Indian Contract Act states that every agreement by which
any one is restrained from exercising a lawful profession, trade or business of any
kind, is, to that extent, void.
This Section is not happily worded and has been criticised by many authors.
It appears from the wording that every kind of restraint, whether total or partial
falls within the prohibition of this Section. In English law the Courts have held
that if a restraint is reasonable, it will be valid. Leading case on his point is
Nordenfelt v. Maxim Nordenfelt Guns Co., (1894) A.C. 535. N was an inventor and
a manufacturer
of guns and ammunition. He sold his world-wide business to M and promised not
to manufacture guns anywhere in the world for 25 years. The House of Lords held
that the restraint was reasonable as it was no more than is necessary for the
protection of the company, the contract was binding. Whether a restraint is
reasonable or not depends upon the facts of each case.
Our courts are not consistent on the point whether reasonable restraints
are permitted or not. In Madhub Chunder v. RaCoomar (1874) 14 Bang. L.R. 76, A
paid Rs. 900 to B’s workman. B undertook to stop his business in a particular
locality in Calcutta. He did not keep his promise. A’s suit for the sum was
dismissed since the agreement was void under Section 27. The reasonableness
or otherwise of the restraint was not discussed. However, if a restrictive meaning is
adopted, most of the ordinary mercantile agreements may be hit. Thus, the Courts
have held that if the restraint is one which is really necessary for the carrying on
business, the same is not prohibited. In Mackenzie v. Sitarmiah, (1891) 15 Mad. 79,
A agreed to sell to B all the salt he manufactured and B agreed to buy such salt. A
further agreed not to sell salt to third-parties. The Court held that the agreement was
valid.
Other type of restrains are personal covenants between an employer and
his employee whereby the latter agrees not to compete with the former or serve with
any of his competitors after employment. This issue came before the Supreme
Court in Niranjan Shanker Golikari v. The Century Spinning and Manufacturing Co.
Ltd., AIR 1967 S.C. 1098. In this case N entered into a bond with the company to
serve for a period of five years. In case, N leaves his job earlier and joins
elsewhere with companys competitor within five years, he was liable for damages.
N was imparted the necessary training but he left the job and joined another
company. The former employer instituted a suit against N. The Supreme Court,
held that the restraint was necessary for the protection of the companys interests
and not such as the Court would refuse to enforce.
In other case, it has been reiterated that the restriction should be
reasonable taking into account the facts and circumstances of the case. In
Superintendence Company of India Ltd. v. Krishna Murgai [(1981) 2 SCC 246], the
Supreme Court laid down that a restraint beyond the term of service would be void
and the only ground on which it can be justified is by showing it is necessary for
the protection of the employers goodwill.
The words “to the extent” in Section 27 make it clear that if in an agreement there
are some convenants which are prohibited whereas the others are not and if the two
parts can be separated then only those convenants which operate as restraint of
trade would be void and not whole of the agreement itself. To illustrate, in
Brahmputra Tea Co. Ltd. v. Scarth (1885) I.L.R. Cal. 545, the employee agreed with
the employer firstly, not to compete with latter after leaving the job and, secondly, not
to injure employer’s interest during employment. The Court held that the first
condition is a restraint of trade but the second is binding.
When Contracts in Restraint of Trade Valid
Prima facie every restraint of trade is void , but certain exceptions to this
general rule are recognised. If a partial and reasonable restraint falls under
any of the following exceptions, the contract will be enforceable:
(a) Sale of goodwill: Where the seller of the goodwill of a business undertakes
 not to compete with the purchaser of the goodwill, the contract is
enforceable provided the restraint appears to be reasonable as to territorial
limits and the length of time.
(b) Partners agreements: Section 11(2) of the Indian Partnership Act
permits contracts between partners to provide that a partner shall not
carry on any business other than that of the firm while he is a partner.
(c) Section 36(2) and Section 54 of the Indian Partnership Act provide that
a partner may make an agreement with his partners that on ceasing to be
a partner he will not carry on any business similar to that of the firm
within specified period or within specified limits. The agreement shall be
binding if the restrictions are reasonable.
Trade Combinations: An agreement, the object of which is to regulate
business and not to restrain it is valid. Thus, an agreement in the nature of a
business combination between traders or manufactures e.g. not to sell their
goods below a certain price, to pool profits or output and to divide the same in an
agreed proportion does not amount to a restraint of trade and is perfectly valid
(Fraster & Co. v. Laxmi Narain, (1931) 63 All 316).
Negative stipulations in service agreements: An agreement of service by which
a person binds himself during the term of the agreement not to take service
with anyone else is not in restraint of lawful profession and is valid.

WAGERING AGREEMENTS
The literal meaning of the word “wager” is a “bet”. Wagerning agreements
are nothing but ordinary betting agreements. For example, A and B enter
into an agreement that if Englands Cricket Team wins the test match, A will pay B
Rs. 100 and if it loses B will pay Rs. 100 to A. This is a wagering agreement and
nothing can be recovered by winning party under the agreement.
The essence of gaming and wagering is that one party is to win and the other
to lose upon a future event which at the time of the contract is of an uncertain
nature that is to say, if the event turns out one way A will lose; but if it turns out
the other way he will win (Thacker v. Hardy, (1878) 4 OBD 685).
Wagering Agreements Void
In India except Mumbai, wagering agreements are void. In Mumbai,
wagering agreements have been declared illegal by the Avoiding Wagers
(Amendment) Act, 1865. Therefore, in Mumbai a wagering agreement being
illegal, is void not only between the immediate parties, but taints and renders void
all collateral agreements to it.
Thus, A bets with B and losses, applies to C for a loan, who pays B in settlement
of A’s losses. C cannot recover from A because this is money paid “under” or “in
respect of” a wagering transaction which is illegal in Mumbai. But in respect of India
such a transaction (i.e., betting) being only void, C could recover from A. Of course, if
A refused to pay B the amount of the bet that he has lost, B could not sue A
anywhere. Again, where an agent bets on behalf of his principal and looses and pays
over the money to the winner, he cannot recover the money from his principal, if
the transactions took place in Mumbai, but elsewhere he could recover. But if the
agent wins, he must pay the winnings to the principal, as this money was received on
behalf of the principal.
Sometimes, commercial transactions assume the form of wagering
contracts. The sample test to find out whether a particular transaction is a wager or
a genuine commercial transaction is: “Where delivery of the goods sold is intended
to be given and taken, it is valid contract, but where only the differences are
intended to be paid, it will be a wagering contract and unenforceable”.
In a wagering contract there must be mutuality in the sense that the gain of
one party should be loss to the other on the happening of an uncertain event which
is the subject matter of the contract.

VOID AGREEMENTS
The following types of agreements are void under Indian Contract Act:
(a) Agreement by or with a minor or a person of unsound mind or a person
disqualified to enter into a contract - Section 11;
(b) Agreement made under a mistake of fact, material to the agreement on the
part of the both the parties - Section 20.
(c) An agreement of which the consideration or object is unlawful - Section 23.
(d) If any part of a single consideration for one or more objects, or any one
or any part of any one of several considerations for a single object, is
unlawful, the agreement is void - Section 24.
(e) An agreement made without consideration subject to three exceptions
provided to Section 25.
(f) An agreement in restraint of marriage - Section 26.
(g) An agreement in restraint of trade - Section 27.
(h) An agreement in restraint of legal proceedings - Section 28.
(i) Agreements, the meaning of which is not certain, or capable of being made
certain - Section 29.
(j) Agreement by way of wager- Section 30.
(k) An agreement to enter into an agreement in the future.
(l) An agreement to do an act impossible in itself - Section 56(1)
When contract becomes void
An agreement not enforceable by law is void ab initio - Section 2(g).
A contract which ceases to be enforceable by law becomes void when it ceases
to be enforceable - Section 2(j)
A contract becomes void when, by reason of some event which the
promisor could not prevent, the performance of the contract becomes
impossible, e.g., by destruction of the subject- matter of the contract after the
formation of the contract.
A contract becomes void by reason of subsequent illegality. A in India agrees
to supply goods to B in Pakistan. After the formation of the contract war breaks
out between India and Pakistan and the supply of goods to Pakistan is
prohibited by
legislation. The contract becomes void.
A contingent contract to do or not do to anything if an uncertain future event
happens becomes void if the event becomes impossible.
Where a contract is voidable at the option of the aggrieved party, the contract
becomes void when the option is exercised by him.

RESTITUTION
When a contract becomes void, it is not to be performed by either party. But
if any party has received any benefit under such a contract from the other party
he must restore it or make compensation for it to the other party. A agrees to sell
to B after 6 months a certain quantity of gold and receives Rs 500 as advance. Soon
after the agreement, private sales of gold are prohibited by law. The contract
becomes void and A must return the sum of Rs. 500 to B.
Restitution is also provided for by Section 65 where an agreement is discovered
to be void. A pays Rs. 500 in consideration of B’s promising to marry, C, A’s daughter
C is dead at the time of the promise. The agreement is discovered to be void and B
must pay back Rs. 500.
But there is no resolution where the parties are wholly incompetent to
contract, e.g., where one of the parties is a minor. The minor cannot be asked to
restore the benefit, e.g., a minor borrowed Rs. 1,000 from B, he cannot be asked to
pay back Rs. 1,000 to B because the contract is void (Mohiri Bibis case).
CONTINGENT CONTRACT (Section 31)
As per Section 31, a contingent contract is a contract to do or not to
do something, if some event collateral to such contract, does or does not happen.
For example, A contracts to sell B 10 bales of cotton for Rs. 20,000, if the ship by
which they are coming returns safely. This is a contingent contract.
Contract of insurance and contracts of indemnity and guarantee are popular
instances of contingent contracts.
Rules regarding contingent contracts
The following rules are contained in Section 32-36:
(a) Contracts contingent upon the happening of a future uncertain event
cannot be enforced by law unless and until that event has happened. If
the event becomes impossible, the contract becomes void - Section 32.
(i) A makes a contract to buy B’s house if A survives C. This contract cannot
be enforced by law unless and until C dies in A’s lifetime.
(ii) A contracts to pay B a sum of money when B marries C, C dies without
being married to B. The contract becomes void.
(b) Contracts contingent upon the non-happening of an uncertain future
event can be enforced when the happening of that event becomes
impossible and not before - Section 33.
A contracts to pay B a certain sum of money if a certain ship does not return.
The ship is sunk. The contract can be enforced when the ship sinks.
(c) If a contract is contingent upon how a person will act at an unspecified time,
 the event shall be considered to become impossible when such person
does anything which renders it impossible that he should so act within any
definite time or otherwise than under further contingencies - Section 34.
A agrees to pay B Rs. 1,000 if B marries C. C marries D. The marriage of
B to C must now be considered impossible although it is possible that D
may die and C may afterwards marry B.
(d) Contracts contingent on the happening of an event within a fixed
time become void if, at the expiration of the time, such event has not
happened, or if, before the time fixed, such event becomes impossible -
Section 35.
A promises to pay B a sum of money if a certain ship returns with in a
year. The contract may be enforced if the ship returns within the
year, and becomes void if the ship is burnt within the year.
(e) Contracts contingent upon the non-happening of an event within a fixed time
may be enforced by law when the time fixed has expired and such event has
not happened or before the time fixed has expired, if it becomes certain that
such event will not happen - Section 35
A promises to pay B a sum of money if a certain ship does not return
within the year. The contract may be enforced if the ship does not return
within the year or is burnt within the year.
(f) Contingent agreements to do or not to do anything if an impossible
event happens, are void, whether the impossibility of the event is known
or not known to the parties to the agreement at the time when it is made -
Section 36.
A agrees to pay Rs. 1,000 to B if two straight lines should enclose a space.
The agreement is void.

CERTAIN RELATIONS RESEMBLING THOSE OF CONTRACT (QUASI CONTRACTS)

Nature of Quasi-Contracts
A valid contract must contain certain essential elements, such as offer
and acceptance, capacity to contract, consideration and free consent. But
sometimes the law implies a promise imposing obligations on one party and
conferring right in favour of the other even when there is no offer, no acceptance, no
consensus ad idem, and in fact, there is neither agreement nor promise. Such
cases are not contracts in the strict sense, but the Court recognises them as
relations resembling those of contracts and enforces them as if they were
contracts, hence the term quasi- contracts (i.e., resembling a contract).
A quasi-contract rests on the equitable principle that a person shall not
be allowed to enrich himself unjustly at the expense of another. In truth, it is
not a contract at all. It is an obligation which the law creates, in the absence
of any agreement, when any person is in the possession of one persons
money, or its equivalent, under such circumstances that in equity and good
conscience he ought not to retain it, and which in justice and fairness belongs to
another. It is the duty and not an agreement or intention which defines it. A very
simple illustration is money paid under mistake. Equity demands that such money
must be paid back.
Quasi-Contracts or Implied Contracts under the Indian Contract Act
The following types of quasi-contracts have been dealt within the Indian Contract
Act—
(a) Necessaries supplied to person incapable of contracting or to anyone whom
he is illegally bound to support - Section 68.
(b) Suit for money had and received - Section 69 and 72.
(c) Quantum Meruit
(d) Obligations of a finder of goods - Section 71.
(e) Obligation of person enjoying benefit of a non-gratuitous act - Section 70
Necessaries
Contracts by minors and persons of unsound mind are void. However, Section 68
of the Indian Contract Act provides that their estates are liable to reimburse the
trader, who supplies them with necessaries of life.
Suit for money had and received
The right to file a suit for the recovery of money may arise
(a) Where the plaintiff paid money to the defendant (i) under a mistake, (ii)
in pursuance of a contract the consideration for which has failed, or (iii)
under coercion, oppression, extortion or other such means.
A debtor may recover, from a creditor the amount of an over-payment made
to him by mistake. The mistake may be mistake of fact or a mistake of law.
(b) Payment to third-party of money which another is bound to pay. For
example, where A’s goods are wrongfully attached in order to realise
arrears of Government revenue due by B, and A pays the amount to
save his goods from being sold, he is entitled to recover the amount from B.
(c) Money obtained by defendant from third-parties. For example, where
an agent has obtained a secret commission or a fraudulent payment
from a third-party, the principle can recover the amount from the agent.
Quantum Meruit
The expression “Quantum Meruit” literally means “as much as earned”
or reasonable remuneration. It is used where a person claims reasonable
remuneration for the services rendered by him when there was no express
promise to pay the definite remuneration, Thus, the law implies reasonable
compensation for the services rendered by a party if there are circumstances
showing that these are to be paid for.
The general rule is that where a party to a contract has not fully performed what
the contract demands as a condition of payment, he cannot sue for payment for that
which he has done. The contract has to be indivisible and the payment can be
demanded only on the completion of the contract.
But where one party who has performed part of his contract is prevented by
the other from completing it, he may sue on a quantum meruit, for the value of
what he has done.
The claim on a quantum meruit arises when one party abandons the contract, or
accepts the work done by another under a void contract.
The party in default may also sue on a “quantum meruit” for what he has done if
the contract is divisible and the other party has had the benefit of the part which has
been performed. But if the contract is not divisible, the party at fault cannot claim the
value of what he has done.
Obligations of finder of lost goods
The liability of a finder of goods belonging to someone else is that of a
bailee. This means that he must take as much care of the goods as a man of
ordinary prudence would take of his own goods of the same kind. So far as the real
owner of the goods is concerned, the finder is only a bailee and must not
appropriate the goods to his own use. If the owner is traced, he must return the
goods to him. The finder is entitled to get the reward that may have been offered by
the owner and also any expenses he may have incurred in protecting and preserving
the property.
Obligation of a person enjoying benefit of non-gratuitous act
Section 70 of the Indian Contract Act provides that where a person lawfully
does something for another person or delivers anything to him without any
intention of doing so gratuitously and the other person accepts and enjoys the
benefit thereof, the latter must compensate the former or restore to him the
thing so delivered. For example, when one of the two joint tenants pays the whole
rent to the landlord, he is entitled to compensation from his co-tenant, or if A, a
tradesmen, leaves goods at B’s house by mistake and B treats the goods as his own,
he is bound to pay A for them.

DISCHARGE OR TERMINATION OF CONTRACTS

A contract is said to be discharged or terminated when the rights and obligations
arising out of a contract are extinguished.
Contracts may be discharged or terminated by any of the following modes:
(a) performance, i.e., by fulfilment of the duties undertaken by parties or, by
tender;
(b) mutual consent or agreement.
(c) lapse of time;
(d) operation of law;
(e) impossibility of performance; and
(f) breach of contract.
(a) Performance of Contracts (Section 37)
Section 37 of the Act provides that the parties to a contract must either perform
or offer to perform their respective promises, unless such performance is dispensed
with or excused under the provision of the Indian Contract Act, or any other law. In
case of death of the promisor before performance, the representatives of the
promisor are bound to perform the promise unless a contrary intention appears from
the contract.
Illustration
X promises to deliver a horse to Y on a certain day on payment of Rs 1,000. X
dies before that day. X’s representatives are bound to deliver the horse to Y and Y is
bound is pay Rs. 1,000 to X’s representatives.
Tender of Performance (Section 38)
In case of some contracts, it is sometimes sufficient if the promisor performs
his side of the contract. Then, if the performance is rejected,the promisor is
discharged from further liability and may sue for the breach of contract if he so
wishes. This is called discharge by tender.
To be valid, a tender must fulfil the following conditions
(a) it must be unconditional;
(b) if must be made at a proper time and place;
(c) it must be made under circumstances enabling the other party to
ascertain that the party by whom it is made is able and willing then and
there to do the whole of what he is bound, to do by his promise;
(d) if the tender relates to delivery of goods, the promisee must have
a reasonable opportunity of seeing that the thing offered is the thing which
the promisor is bound by his promise to deliver;
(e) tender made to one of the several joint promisees has the same effect as a
tender to all of them.
Who can demand performance?
Generally speaking, a stranger to contract cannot sue and the person who
can demand performance is the party to whom the promise is made. But an
assignee of the rights and benefits under a contract may demand performance by
the promisor, in the same way as the assignor, (i.e., the promisee) could have
demanded.
Effect of refusal of party to perform wholly
Section 39 provides that when a party to a contract has refused to perform
or disabled himself from performing his promise in its entirety, the promisee may put
an end to the contract unless he had signified by words or conduct his
acquiescence in its continuance.
Illustration
(a) X, a singer enters into a contract with Y, the manager of a theatre to sing at
his theatres two nights in every week during the next two months, and Y
engaged to pay her Rs. 100 for each nights performance. On the sixth night
X wilfully absents herself form the theatre. Y is at liberty to put an end to the
contract.
(b) If in the above illustration, with the assent of Y, X sings on the seventh
night, Y is presumed to have signified his acquiescence in the continuance
of the contract and cannot put an end to it; but is entitled to compensation
for the damages sustained by him through X’s failure to sing on the sixth
night.
By whom contract must be performed
Under Section 40 of the Act, if it appears from the nature of the case that it was
the intention of the parties to a contract that it should be performed by the promisor
himself such promise must be performed by the promisor himself. In other cases, the
promisor or his representative may employ a competent person to perform it.
Illustration
(a) X promises to pay Rs. 1,000 to Y. X may either personally pay the money
to Y or cause it to be paid to Y by another. If X dies before making payment,
his representatives must perform the promise or employ some proper
person to do so.
(b) X promises to paint a picture for Y. X must personally perform the promise.
Devolution of Joint Liabilities
Under Section 42 of the Indian Contract Act, where two or more persons
have made a joint promise then, unless a contrary intention appears from the
contract all such persons should perform the promise. If any one of
them dies, his representatives jointly with the survivor or survivors should perform.
After the death of the last survivor, the representatives of all jointly must fulfil the
promise.
Under Section 43 of the Indian Contract Act when two or more persons made
a joint promise, the promisee may, in the absence of an express agreement to
the contrary compel any one or more of such joint promisors to perform the whole of
the promise. 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. If any one of two ore more
promisors make default in such contribution, the remaining joint promisors should
bear the loss arising from such default in equal share.

Illustrations
(a) X, Y and Z jointly promise to pay Rs. 6,000 to A. A may compel either X or Y
or Z to pay the amount.
(b) In the above example imagine, Z is compelled to pay the whole amount; X
is insolvent but his assets are sufficient to pay one-half of his debts. Z is
entitled to receive Rs. 1,000 from X’s estate and Rs. 2,500 from Y.
(c) X, Y and Z make a joint promise to pay Rs. 5,000 to A, Z is unable to pay
any amount and X is compelled to pay the whole. X is entitled to
receive Rs. 3,000 from Y.
Under Section 44 of the Act, 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(s); neither does it free the joint promisor so
released from responsibility to the other joint promisor or joint promisors.
Devolution of Joint Rights
A promise may be made to two or more persons. The promisees are called
joint promisees. For example, X may give a promise to repay Rs. 1,000 given by Y
and Z jointly. In such case, in the absence of a contrary intention, the right to
claim, performance rests with Y and Z. If Y dies, Y’s representative jointly with
Z may, demand performance. If Z also dies, the representatives of Y and Z may
demand jointly performance from X.
Assignment
The promisee may assign rights and benefits of contract and the assignee will be
entitled to demand performance by the promisor. But the assignment to be complete
and effectual, must be made by an instrument in writing.
An obligation or liability under a contract cannot be assigned. For example, if
A owes B Rs. 500 and A transfers the liability to C i.e. asks C to pay the sum to B,
this would not bind B, and B may not consent to this arrangement, as he may
know nothing of C’s solvency. But if B consents to accept performance by C,
there is a substitution of new contract and the old contract is discharged and all
rights and liabilities under it are extinguished. This is technically called novation.
(b) Discharge by Mutual Agreement or Consent (Sections 62 and 63)
A contract may be discharged by the agreement of all parties to the contract, or
by waiver or release by the party entitled to performance.
The methods stipulated under Sections 62 and 63 of the Indian Contract Act for
discharging a contract by mutual consent are:
Novation   when a new contract is substituted for existing contract
either between the same parties or between different parties, the consideration
mutually being the discharge of the old contract.
Alteration  change in one or more of the material terms of a contract.
Rescission   by agreement between the parties at any time before it is
discharged by performance or in some other way.
Remission   acceptance of a lesser sum than what was contracted for or a
lesser fulfilment of the promise made.
Waiver  deliberate abandonment or giving up of a right which a party is entitled
to under a contract, where upon the other party to the contract is released from his
obligation.

(c) Discharge by Lapes of Time

The Limitation Act, in certain circumstance, affords a good defence to suits
for breach of contract, and infact terminates the contract by depriving the party of
his remedy to law. For example, where a debtor has failed to repay the loan on
the stipulated date, the creditor must file the suit against him within three years of
the default. If the limitation period of three years expires and he takes no action he
will be barred from his remedy and the other party is discharged of his liability to
perform.

(d) Discharge by Operation of the Law

Discharge under this head may take place as follows:
(a) By merger: When the parties embody the inferior contract in a superior
contract.
(b) By the unauthorised alteration of items of a written document: Where a
party to a written contract makes any material alteration without
knowledge and consent of the other, the contract can be avoided by the
other party.
(c) By insolvency: The Insolvency Act provides for discharge of contracts
under particular circumstances. For example, where the Court passes
an order discharging the insolvent, this order exonerates or discharges
him from
 liabilities on all debts incurred previous to his adjudication.
(e) Discharge by Impossibility or Frustration (Section 56)
A contract which is entered into to perform something that is clearly impossible
is void. For instance, A agrees with B to discover treasure by magic. The
agreement is void by virtue of Section 56 para 1 which lays down the principle that
an agreement to do an act impossible in itself is void.
Sometimes subsequent impossibility (i.e. where the impossibility
supervenes after the contract has been made) renders the performance of a
contract unlawful and stands discharged; as for example, where a singer
contracts to sing and becomes too ill to do so, the contract becomes void. In
this connection, para 2 of Section 56 provides that a contract to do an act, which
after the contract is made, becomes impossible or by reason of some event
which the promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
If the impossibility is not obvious and the promisor alone knows of
the impossibility or illegally then existing or the promisor might have known as such
after using reasonable diligence, such promisor is bound to compensate the
promisee for any loss he may suffer through the non-performance of the promise
inspite of the agreement being void ab-initio (Section 56, para 3).
In Satyabarta Ghose v. Mugnuram A.I.R. 1954 S.C. 44 the Supreme
Court interpreted the term ‘impossible appearing in second paragraph of Section
56. The Court observed that the word ‘impossible has not been used here in the
sense of physical or literal impossibility. The performance of an act may not
be literally impossible but it may be impracticable and useless from the point of
view of the object and purpose which the parties had in view; and if an untoward
event or change of circumstances totally upsets the very foundation upon which
the parties rested their bargain; it can very well be said that the promisor found it
impossible to do the act which he promised to do. In this case, A undertook to sell
a plot of land to B but before the plot could be developed, war broke out and
the land was temporarily requisitioned by the Government. A offered to return
earnest money to B in cancellation of contract. B did not accept and sued A
for specific performance. A pleaded discharge by frustration. The Court held that
Section 56 is not applicable on the ground that the requisition was of temporary
nature and there was no time limit within which A was obliged to perform the
contract. The impossibility was not of such a nature which would strike at the root of
the contract.
Discharge by Supervening Impossibility
A contract will be discharged by subsequent or supervening impossibility in any
of the following ways:
(a) Where the subject-matter of the contract is destroyed without the fault of the
parties, the contract is discharged.
(b) When a contract is entered into on the basis of the continued existence of
a certain state of affairs, the contract is discharged if the state of
things changes or ceases to exist.
(c) Where the personal qualifications of a party is the basis of the contract, the
contract is discharged by the death or physical disablement of that party.
Discharge by Supervening Illegality
A contract which is contrary to law at the time of its formation is void. But if, after
the making of the contract, owing to alteration of the law or the act of some person
armed with statutory authority the performance of the contract becomes impossible,
the contract is discharged. This is so because the performance of the promise is
prevented or prohibited by a subsequent change in the law. A enters into contract
with B for cutting trees. By a statutory provision cutting of trees is prohibited except
under a licence and the same is refused to A. The contract is discharged.
Cases in which there is no supervening impossibility
In the following cases contracts are not discharged on the ground of supervening
impossibility
(a) Difficulty of performance: The mere fact that performance is more difficult
or expensive than the parties anticipated does not discharge the duty
to perform.
(b) Commercial impossibilities do not discharge the contract. A contract is not
discharged merely because expectation of higher profits is not realised.
(c) Strikes, lockouts and civil disturbance like riots do not terminate
contracts unless there is a clause in the contract providing for non-
performance in such cases.
Supervening impossibility or illegality is known as frustration under English Law.
(f) Discharge by Breach
Where the promisor neither performs his contract nor does he
tender performance, or where the performance is defective, there is a breach of
contract. The breach of contract may be (i) actual; or (ii) anticipatory. The actual
breach may take place either at the time the performance is due, or when actually
performing the contract. Anticipatory breach means a breach before the time for
the performance has arrived. This may also take place in two ways – by the
promisor doing an act which makes the performance of his promise impossible or
by the promisor in some other way showing his intention not to perform it.

Anticipatory Breach of Contract

Breach of contract may occur, before the time for performance is due. This
may happen where one of the parties definitely renounces the contract and
shows his intention not to perform it or does some act which makes performance
impossible. The other party, on such a breach being committed, has a right
of action for damages.
He may either sue for breach of contract immediately after repudiation or wait till
the actual date when performance is due and then sue for breach. If the promisee
adopts the latter course, i.e., waits till the date when performance is due, he keeps
the contract alive for the benefit of the promisor as well as for his own. He remains
liable under it and enables the promisor not only to complete the contract in spite of
previous repudiation, but also to avail himself of any excuse for non- performance
which may have come into existence before the time fixed for performance.
In Hochester v. De La Tour (1853) E.R. 922, A hired B in April to act as a
courier commencing employment from 1st June, but wrote to B in May
repudiating the agreement, B sued A for breach of contract immediately after
repudiation. A contended that there could not be breach of contract before June
1. Held, B was immediately entitled to sue and need not wait till 1st June, for his
right of action to accrue.
In Avery v. Bowden (1856) 116 E.R. 1122, A hired B’s ship to carry a cargo
from Russia. Later on B repudiated the contract. A delayed taking action hoping B
would change his mind before the performance date. War broke out between
Russia and Britain before the performance date frustating the contract. Held, A
lost his right to sue B for damages by his delay.
In Frost v. Knight (1872) L.R. 7 Ex. 111, the law on the subject of anticipatory
breach was summed up as follows:
“The promisee if he pleases may treat the notice of intention as inoperative
and await the time when the contract is to be executed and then hold the other
party responsible for all the consequences of non-performance: but in that case he
keeps the contract alive for the benefit of the other party as well as his own; he
remains subject to all his own obligations and liabilities under it, and enables the
other party not only to complete the contract, if so advised, notwithstanding
his previous repudiation of it, but also to take advantage of any supervening
circumstances which would justify him in declining to complete it. “

REMEDIES FOR BREACH

Where a contract is broken, the injured party has several courses of action open
to him. The appropriate remedy in any case will depend upon the subject-matter of
the contract and the nature of the breach.
(i) Remedies for Breach of Contract
In case of breach of contract, the injured party may:
(a) Rescind the contract and refuse further performance of the contract;
(b) Sue for damages;
(c) Sue for specific performance;
(d) Sue for an injunction to restrain the breach of a negative term; and
(e) Sue on quantum meruit
When a party to a contract has broken the contract, the other party may treat
the contract as rescinded and he is absolved from all his obligations under the
contract. Under Section 65, when a party treats the contract as rescinded, he
makes himself liable to restore any benefits he has received under the contract to
the party from whom such benefits were received. Under Section 75 of the Indian
Contract Act, if a person rightfully rescinds a contract, he is entitled to a
compensation for any damage which he has sustained through the non-fulfilment of
the contract by the other party. Section 64 deals with consequences of rescission
of voidable contracts, i.e., where there is flaw in the consent of one party to the
contract. Under this Section when a person at whose option a contract is voidable
rescinds, the other party thereto need
not perform any promise therein contained in which he is the promisor. The
party rescinding a voidable contract shall, if he has received any benefit
thereunder, from another party to such contract, restore such benefit so far as may
be, to the person from whom it was received.
(ii) Damages for Breach of Contract
Under Section 73 of the Indian Contract Act, when a contract has been broken,
a party who suffers by such breach is entitled to receive, from the party who has
broken the contract, compensation for any loss or damage, caused to him
thereby, which naturally arose in the usual course of things from such breach or
which the parties knew, when they made the contract to be likely to result from the
breach of it. Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach.
The foundation of the claim for damages rests in the celebrated case of Hadley v.
Baxendale, (1854) 9 Ex. 341. The facts of this case were as follows:
There was a breakdown of a shaft in A’s mill. He delivered the shaft to B,
a common carrier to be taken to a manufacturer to copy and make a new one. A did
not make known to B that delay would result in loss of profits. By some neglect on
the part of B, the delivery of the shaft was delayed in transit beyond a reasonable
time. As a result, the mill was idle for a longer period than it would otherwise have
been, had there been no such delay. It was held, B was not liable for the loss of
profits during the period of delay as the circumstances communicated to A did not
show that the delay in the delivery of the shaft would entail loss of profits to the
mill. In the course of the judgement it was observed:
“Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either arising
naturally, i.e., according to the usual course of things from such breach of
contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties at the time they made the contract as the probable
result of the breach of it. Now, if the special circumstances under which the
contract was actually made were communicated by the plaintiffs to the defendants
and thus known to both the parties, the damages resulting from the breach of
such a contract which they would reasonably contemplate, would be the amount
of injury which would ordinarily follow from a breach of contract under these
special circumstances so known and communicated. But, on other hand, if
these special circumstances were wholly unknown to the party breaking the
contract, he at the most could only be supposed to have had in his contemplation,
the amount of injury which would arise generally and in the great multitude of
cases not affected by any special circumstances from such breach of contract. For,
had the special circumstances been known, the parties might have specially
provided for the breach of contract by special terms as to damages in that case and
of this advantage it would be very unjust to deprive them.”
Liquidated and Unliquidated damages: Where the contracting parties agree
in advance the amount payable in the event of breach, the sum payable is
called liquidated damages.
Where the amount of compensation claimed for a breach of contract is left to be
assessed by the Court, damages claimed are called unliquidated damages.
Unliquidated Damages
Those are of the following kinds:
(a) general or ordinary damages, (b) special damages (c) exemplary or punitive
damages, and (d) nominal damages.
Ordinary Damages
These are restricted to pecuniary compensation to put the injured party in
the position he would have been had the contract been performed. It is the
estimated amount of loss actually incurred. Thus, it applies only to the proximate
consequences of the breach of the contract and the remote consequences
are not generally regarded. For example, in a contract for the sale of goods, the
damages payable would be the difference between the contract price and the price
at which the goods are available on the date of the breach.
Special Damages
Special damages are those resulting from a breach of contract under
some peculiar circumstances. If at the time of entering into the contract, the
party has notice of special circumstances which makes special loss the likely
result of the breach in the ordinary course of things, then upon his-breaking the
contract and the special loss following this breach, he will be required to make
good the special loss. For example, A delivered goods to the Railway Administration
to be carried to a place where an exhibition was being held and told the goods clerk
that if the goods did not reach the destination on the stipulated date he would suffer
a special loss. The goods reached late. He was entitled to claim special damages.
Exemplary Damages
These damages are awarded to punish the defendant and are not, as a
rule, granted in case of breach of contract. In two cases, however, the court may
award such damages, viz.,
(i) breach of promise to marry; and
(ii) wrongful dishonour of a customers cheque by the banker.
In a breach of promise to marry, the amount of the damages will depend upon
the extent of injury to the partys feelings. In the bankers case, the smaller the amount
of the cheque dishonoured, larger will be damages as the credit of the customer
would be injured in a far greater measure, if a cheque for a small amount is
wrongfully dishonoured.
Nominal Damages
Nominal damages consist of a small token award, e.g., a rupee of even 25
paise, where there has been an infringement of contractual rights, but no actual
loss has been suffered. These damages are awarded to establish the right to
decree for breach of contract.
Liquidated Damages and Penalty
Where the contracting parties fix at the time of contract the amount of
damages that would be payable in case of breach, in English law, the question
may arise whether the term amounts to “liquidated damages” or a “penalty”?
The Courts in England usually give effect to liquidated damages, but they
always relieve against
penalty.
The test of the two is that where the amount fixed is a genuine pre-estimate of
the loss in case of breach, it is liquidated damages and will be allowed. If the amount
fixed is without any regard to probable loss, but is intended to frighten the party and
to prevent him from committing breach, it is a penalty and will not be allowed.
In Indian law, there is no such difference between liquidated damages
and penalty. Section 74 provides for “reasonable compensation” upto the
stipulated amount whether it is by way of liquidated damages or penalty. For
example, A borrows
Rs. 500 from B and promises to pay Rs. 1,000 if he fails to repay Rs. 500 on
the stipulated date. On A’s failure to repay on the given date, B is entitled to recover
from A such compensation, not exceeding Rs. 1,000 as the Court may
consider reasonable. (Union of India v. Raman Iron Foundry, AIR 1974 SC 1265).

(iii) Specific Performance

It means the actual carrying out by the parties of their contract, and in
proper cases the Court will insist upon the parties carrying out this agreement.
Where a party fails to perform the contract, the Court may, at its discretion,
order the defendant to carry out his undertaking according to the terms of the
contract. A decree for specific performance may be granted in addition to or instead
of damages.
Specific performance is usually granted in contracts connected with land,
e.g., purchase of a particular plot or house, or to take debentures in a company. In
case of sale of goods, it will only be granted if the goods are unique and cannot be
purchased in the market, e.g., a particular race horse, or one of special value to the
party suing by reason of personal or family association, e.g., an heirloom.
Specific performance will not be ordered:
(a) where monetary compensation is an adequate remedy;
(b) where the Court cannot supervise the execution of the contract, e.g., a
building contract;
(c) where the contract is for personal service; and
(d) where one of the parties is a minor.
(iv) Injunction
An injunction, is an order of a Court restraining a person from doing a
particular act. It is a mode of securing the specific performance of a negative
term of the contract, (i.e., where he is doing something which he promises not to
do), the Court may in its discretion issue an order to the defendant restraining him
from doing what he promised not to do. Injunction may be prohibitory or mandatory.
In prohibitory, the Court restrains the commission of a wrongful act whereas in
mandatory, it restrains continuance of a wrongful commission.
In Lumley v. Wagner (1852) 90 R.R. 125. W agreed to sing at L’s theatre
and nowhere else. W, in breach of contract with L entered into a contract to sing
for Z. Held, although W could not be compelled to sing at Ls theatre, yet she
could be restrained by injunction from singing for Z.