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1. (a) Define contract with its essential elements.
(b) Write the various classification of contract.
Ans.:-
Meaning of contract
In simple terms, a contract means when two parties put into writing an agreement which
contains certain obligations (promises) which are to be performed by such parties, and
when such written agreement becomes enforceable by law, it becomes a Contract.
Enforceable by law means when the agreement has acquired the force of law only for those
who are a party to it and a violation of those obligations would attract legal action, including
repudiation of the entire contract.
Contract Act defines a Contract as “An agreement which is enforceable by Law” [Section
2(h) Indian Contract Act, 1872]. An Agreement is a settlement between two parties, which
contains obligations or promises which both parties need to fulfil. When such an agreement
is made binding by Law it becomes a Contract. [“Every promise and every set of promise
forming consideration for each other is an agreement”- Section2(e) of Contract Act]
Therefore an agreement consists of reciprocal Promises which are to be performed by
parties to the contract. Promises are reciprocal when both parties have to perform
something for the other.
Pollock- “Every agreement and promise enforceable by law is a contract”.
Salmond- “A contract is an agreement creating and defining obligation between two or more
persons by which rights are acquired by one or more to acts or forbearance on the part of
others”.
Anson- “The law of contract is that branch of law which determine the circumstances in
which a promise shall be legally binding on the person making it’.
Now after examining the definitions of contract we can say thatContract = Agreement + Enforceability
Illustration: A contracted with B for purchase of 10 bags of cement of a certain quality, for
Rs 1, 00,000. In this case, B’s promise is to provide A with 10 bags of cement of that quality
only for which A has contracted and A’s promise is to duly pay B Rs.1, 00,000. In this case,
both have to perform something for the other, thus it is a case of reciprocal promise.
Charity is not a case of reciprocal promise, because a person doing charity, does not expect
anything in return.
Contracts in India is primarily governed by INDIAN CONTRACT ACT, 1872 (“Contract Act”).
It contains basic elements of a contract and several general rules which apply to contracts.
It does not impose any positive duty on the parties rather, it states various formalities
regarding contracts.
Essential Elements of a Contract
Agreement: According to Section 2(e) every promise and set of promises forming the
consideration for each other is agreement. This means that in an agreement there can be
one or more than one promises given in return for each other. Promise is defined in Section
2 (b) in these words.
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. Therefore every
agreement, is composed of a proposal from one side and its acceptance from the other. To
sum up:
Agreement = Offer or Proposal+ Acceptance of Offer
The agreement must give rise to legal obligation: i.e., it should be enforceable by law: An
agreement to become a contract must be coupled with obligation. An obligation is the legal
duty to do or abstain from doing something. Here a distinction needs to be made between
legal and social obligations. Agreements creating social or moral obligations do not make a
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contract. Thus an agreement to have lunch together or to go to a movie is not legally
binding.
In such agreements no legal duty is imposed on any party. Such agreements are social
agreements which do not give rise to legal consequences. To make a contract, an
agreement must be enforceable by law.
This means that the agreement must give rise to legal obligation. It is clear from the above
discussion that. All contracts are agreements but all agreements are not contracts. All
agreements are not contracts. An agreement may or may not create a legal obligation. If no
legal binding is intended, a contract does not arise.
Agreements of moral or social nature do not make contracts because parties never intend
to create binding legal obligation. In such cases no one can sue the other party in case of
default. On the other hand, all contracts are necessarily composed of agreements because
for making a contract there must be an agreement first and then it should be enforceable by
law.
Example
1. X agrees to sell his car to Y for Rs. 80,000. It is an agreement which is legally
enforceable, and in case of any breach of promise, the other party will be at liberty to file a
suit to recover, the damages.
2. X agrees to come to the house of Y for a tea party at Y’s request, there is an agreement,
but it cannot be termed as a contract but it does not attract any legal enforce ability.
Thus, all contracts are agreements but all agreements are not contracts. Only that
agreement which is enforceable by law is a contract, and that which is not enforceable by
law cannot be a contract.
Essential Elements of a Valid Contract:
An agreement becomes legally enforceable when it fulfills the conditions laid down in
Section 10 of the Contract Act which states, 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 not hereby expressly declared to be void. In order to become a contract,
an agreement must have the following essential elements:
Offer and Acceptance : In order to create a valid contract, there must be an agreement
between two parties. An offer from one party to do or abstain from doing a particular act and
its acceptance by the other party are two basic elements of an agreement.
Therefore, the offer is the starting point of a contract. Unless there is an offer from one party
and it is accepted by other, no agreement can arise. Not only this the offer must be certain
and must be communicated to the, Similarly, acceptance must be absolute and
unconditional, it must be given in the mode prescribed and should be communicated.
Intention to create Legal Relationship: There should be an intention on the part of the
parties to the agreement to create a legal relationship. A contract is a valid agreement which
is enforceable by law Agreement should not be social, otherwise it will not create a legal
obligation and will not become a contract.
Lawful consideration: The agreement must be supported by a lawful consideration on both
sides. Consideration means something in return. Section 25 provides that an agreement
without consideration is not enforceable barring certain exceptions. Each party to an
agreement must give and receive something in return.
This something in return for the promise is the consideration for the promise. Consideration
May consist of some act or abstinence or a promise to do or abstain from doing something.
It need not be adequate but must have some value in the eyes of law.
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Not only this it should be lawful also, i.e., it should not be forbidden bylaw, should not be
fraudulent, or immoral or opposed to any public policy. It may be past, present or future.
Parties competent to contract: The parties to a contract must be capable of entering into
a valid contract. According to Section 11, every person is competent to contract if he
 is the age of majority,
 is of sound mind, and
 is not disqualified from contracting by any law to which he is subject. Contracts entered
into by a minor are void initiation.
Free consent: The contract must have been made with the free consent of the parties.
Consent implies agreeing upon the same thing in the same sense and consent is said to be
free if it is not induced by coercion, undue influence, fraud, misrepresentation or mistake.
If the consent is obtained by any of the above four factors except mistake, the agreement is
voidable at the option of the party whose consent is not free. The party can either reject the
contract or accept it. If the agreement is induced by mutual mistake, the agreement is void.
Lawful object: The object of the agreement should be lawful and not one of which the law
disapproves. The object would be unlawful if it is forbidden by law, is fraudulent, or causes
injury to the person or property of another, or is immoral or opposed to any public policy.
Not expressly declared void agreement: The agreements must not have been expressly
declared to be void by any law. There are certain agreements which have been expressly
declared void by the Indian Contract Act like agreements in restraint of marriage, trade or
legal proceedings, and agreements with uncertain meaning. In such cases even if the
agreement possesses all the elements of a valid agreement, it will not be enforceable by
law.
Certainty of meaning and possibility of performance: The meaning of the agreement
must be certain, otherwise the agreement will not be enforceable bylaw. For example if X
agrees to sell to Y 500 liters of oil@ Rs.50 per liter, the agreement is not enforceable as
there is nothing to show the type of oil being sold. Not only this the act contemplated in the
agreement should be capable of performance. An agreement to do an act impossible in
itself cannot be enforced.
Necessary legal formalities: The prescribed legal formalities of writing, registration etc.,
must be observed, wherever required. A contract may be oral or in writing. Where it is to be
in writing, it must comply with the necessary legal formalities as to writing, stamping,
registration and attestation.
Various Classification of Contract
There are various types of contracts that are formed voluntarily via civil obligations. They
are as follows:
(I) Adhesion Contracts – These types of contracts are those which are formed by the
stronger party. It is a sort of, “Opt for it or do not” contract. The stronger party or the one
that has the bargaining power leaves the other party with a choice whether to accept or
reject the contract.
(II) Aleatory Contracts – This type of contract involves a mutual agreement that comes into
being after an unexpected occurrence, accident, or a natural calamity. In this type of
contract both the parties have an element of risk. Fire or Car insurances are this type of
contract.
(III) Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. Both
parties are obliged to one another for performing or abstaining to perform any act. It is also
called a two-sided contract as it involves two way promises. Meanwhile, unilateral contracts
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are those in which the promise is made by only one party. They consist of an offeror and
offeree. The offeror makes a promise to perform an action and is bound by the law to do
so. The offeree is not bound to the court even if he fails to execute the requested action
because he does not promise anything at all.
(IV) Express Contracts – These contracts are those wherein the terms of the contracts are
expressed clearly whether in written documents or orally.
(V) Implied Contracts – There are no oral or written terms in this type of contract. The
contracts are assumed owing to the facts of the parties. If an individual visits a medical
professional, he expects to be diagnosed for a disease or illness and be advised a cure.
This is an implied contract and a patient is capable of suing a medical practitioner for
malpractice.
(VI) Void and Voidable Contracts – Void contracts are illegal from the very beginning and
hold no validity under law. They are thereby un-enforceable. Voidable contracts are unlike
void contracts in the sense that one party is bound by the contract and the unbound party is
capable of terminating the contract as they are unbound to it.
A quasi-contract is unlike a real contract. Salmond defines quasi contracts as “there are
certain obligations which are not in truth contractual in the sense of resting on agreement,
but which the law treats as if they were”. It is important to remember that even though it is
imposed by law, it is not created by the operation of the contract.
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2. Explain Quasi-Contracts in the light of section 68 to 72 of the
Indian Contract Act, 1872.
Ans.:If, while riding on a train, a shoe shiner comes, and without us saying anything, starts to
polish our shoes and when they’re done, they ask for some money. Are we obliged to pay
them that amount? Or can we tell them “I did not ask you to polish my shoe anyway!”.
Imagine another situation, where someone else’s Amazon package, with its payment
already done, is left at your door. Do you become all excited and say “YAY! Free Gifts!” or
do you make an effort to find the owner or return the package? This blog post will give you
answers to similar questions.
There are certain obligations, specified in the Indian Contract Act, that are not actually
contracts because they miss one or the other elements of a contract, but are still
enforceable in a court of law. Such obligations are called Quasi-contractual obligations.
Each of them has been talked about separately in Sections 68 to 72 (Chapter V) of the
Indian Contract Act, 1872. Let us first look where these obligations arise from, and then
discuss each of them separately.
Background
It is first important to note that a contract before it becomes so, is an agreement. Therefore,
where there is no agreement, there is no contract. Yet, there are some obligations that do
not have their origin in an agreement. The obligation not to harm another person or his
property (Torts), for instance, the judgments or orders of courts, quasi-contractual
obligations, etc. These obligations are not ‘contracts’ by definition, but they are enforceable
in a court of law.
The Principle of Unjust Enrichment
Quasi-contracts are based on the principle of “Nemo debet locupletari ex aliena jactura”,
which means ‘No man should grow rich out of another person’s loss’. Therefore, liability in
the case of quasi-contractual obligations is based on the principle of ‘unjust enrichment’. It
essentially means that no man should get unjustly enriched at the cost of another person’s
loss. That means no person should gain anything unjustly, when his gaining such a thing
may mean a loss for another person.
Features of a Quasi-Contract
 Their origin does not lie in the offer and its acceptance, that is, in an agreement between
the parties.
 They are rather based on justice, equity, and a good conscience and on the principles of
natural justice.
Section 68 (Claim for necessaries supplied to person incapable of contracting, or on his
account)
If the “necessaries” for a person, who is incapable of contracting (for example, a minor or a
mentally disabled person) or of the dependants of such a person are taken care of by
someone, he has the right to be reimbursed from the property of such incapable person.
Although the word “necessaries” has not specifically been defined in the Act, it is impliedly
clear that it means the necessaries to sustain life, basic things like food, clothing, education,
etc. These are things without which a person cannot reasonably exist. In simple terms, if a
person A supplies another person B (who is incapable of entering into a contract) or his
family or anybody else who is dependant on him, with necessaries for life, he is entitled to
take his due return from the property of person B. He is entitled only to such a reasonable
amount as the value of the goods or services he may have supplied hold.
Section 69 (Reimbursement of person paying money due by another, in payment of which
he is interested)
If a person A pays something in someone’s (a person B’s) place, that which person B is
himself ‘bound by law’ to pay, A will be reimbursed by B. Please note that the person A
should be ‘interested’ in this payment. It is a case of implied indemnity.
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For instance, Joe is a Zamindar. Annie holds one of his lands on lease in Punjab. The
revenue of Joe’s land is payable to the government in arrears. So, the land ends up being
advertised for sale by the government. According to the Revenue Law, if the land is sold, it
will end Annie’s lease. To prevent this sale, Annie pays Joe’s dues to the government. Joe
is bound to pay back to Annie.
The aforementioned illustration satisfies the following conditions 1. The party paying the
other party’s dues is interested in the payment.
2. The party whose payment is due was in fact bound by law to pay.
Section 70 (Obligation of person enjoying the benefit of the non-gratuitous act)
When a person lawfully does something for another person (for example, delivers a good or
a service) without intending to do so ‘gratuitously’, and the other person enjoys the benefit
of the delivery of that good or service, the latter is bound to pay back to the former.
A gratuitous act is one that is done for a person by another without the expectation of a
return. For example, giving someone a gift is a gratuitous act. Here comes your Amazon
package delivered to the wrong address. A pack of chocolate chip cookies that you ate as
soon as they arrived. You are liable to compensate the actual owner of the package. The
illustration of a shoe-shiner unsolicitedly polishing one’s shoes or that of the coolie picking
up one’s goods will lie under Section 70. Such acts and services are not done gratuitously
and therefore a liability to pay back arises on the part of the person on the receiving end.
Section 71 (Responsibility of finder of goods)
Simply, a person who finds goods that belong to another person shall be treated as a
bailee. A bailee is essentially a safe keeper of the goods, who is supposed to return the
goods to the actual owner or dispose them in the manner in which the actual owner may
want them to. The bailee has certain duties and rights as the ‘possessor’ or ‘custodian’ of
the goods for the time being. For example, Sarah finds a diamond lying on the floor in a
shop. She picks it up and keeps it in her safe possession. Sarah makes all reasonable
efforts to find the true owner of the diamond. The diamond actually belonged to Nadia.
Sarah has the right to hold the possession of the diamond against all the world except
Nadia, and is supposed to make reasonable efforts to find her, and return it to her. In this
case, Nadia will have to pay the compensation for all the loss suffered by Sarah in finding
her.
Duties of the finder of goods
1. The finder has a duty to take reasonable care.
2. He/she has a duty not to use the goods for his personal purposes. 3. He/she has a duty
not to mix the found goods with his own goods. 4. He/she has a duty to make reasonable
efforts to find the actual owner of the goods.
Rights of the finder of goods
1. Right to Lien– The right to retain the goods found until he receives compensation for all
the expenses suffered in finding the owner.
2. Right to Sue– If the owner had announced a reward for whoever finds the good, the
finder has the right to sue the owner for such reward or retain the goods until he is
compensated.
3. Right to Sell– The finder of goods has the right to sell the goods in certain specific
circumstances, for example:
i) If the owner could not be found even after reasonable efforts. ii) If the owner is found but
refuses to pay compensation or the lawful charges of the finder.
iii) If the goods are in immediate danger of perishing if not used.iv) If the lawful charges of
the finder amount to two-thirds of the value of goods.
Section 72 (Liability of person to whom money is paid or thing delivered by mistake
or under coercion)
As the heading suggests, if something is delivered to a person by ‘mistake’ or under
‘coercion’, he is liable to pay it back. For instance, Aristotle and Dante share a flat and
contribute in half for the rent to be paid. Aristotle, without knowing that Dante has already
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paid the due rent to the landlord in whole, pays again to the landlord. The landlord, in this
case, is liable to give back the money delivered to him by mistake. The term mistake here
can mean both mistake of fact or mistake of law.
The section also uses the term ‘coercion’. Here is an example of something delivered under
coercion- A railway company refuses to deliver goods to a certain consignee except upon
the payment of a certain illegal sum of money. The consignee pays the sum to obtain his
goods. The company is liable to return the sum of money illegally charged.
Conclusion
A contract has certain elements, like the offer, and its acceptance, that give rise to an
agreement. The agreement, if it is legally enforceable becomes a contract, that is, it can be
taken care of in a court of law in case it is not performed by either of the parties involved.
Yet, there are certain situations where even in the absence of an ‘agreement’ as such, one
or the other party is obliged to perform something. Such obligations are called quasi
contractual obligations. Chapter V of the Indian Contract Act, 1872 deals with such
obligations.
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(a) Define Injunction.
(b) Differentiate between temporary injunction and perpetual
injunction.
3.
The term ‘injunction’ has been the subject of various attempts at a definition. It has been
defined by Joyce as, “An order remedial, the general purpose of which is to restrain the
commission of some wrongful act of the party informed”.
Burney defined injunction as, “a judicial process, by which one who has invaded or
threatening to invade the rights of another is restrained from continuing or commencing
such wrongful act”.
The most expressive and acceptable definition is the definition of Lord Halsbury. According
to him, “An injunction is a judicial process whereby a party in an order to refrain from doing
or to do a particular act or thing”. Injunction acts in personam i.e. it does not run with the
property. For instance, ‘A’ the plaintiff gets an injunction against ‘B’ forbidding him to erect
a wall. ‘B’ sells the property to ‘C’. In such a case, the sale does carry an injunction with it.
An injunction may be issued against individuals, public bodies or even the State.
Disobedience of the order of an injunction is punishable as contempt of court. There are
three characteristics of an injunction. They are as follows.
 A judicial process.
 The relief obtained is restraint or prevention.
 The act restrained is wrongful.
Comparison of English and Indian Law
The nature of discretion and the rules of guidance for issuing orders of an injunction are the
same in both English and Indian Law. Under English law damages in substitution for an
injunction may be given if:  The injury to the plaintiff’s legal rights is small;
 The injury is one which is capable of being estimated in money;  The injury can be
adequately compensated by a small payment; and  The case is one in which grant of an
injunction would be oppressive to the defendant.
In India also some of these rules are incorporated in sections of the Specific Relief Act,
1963.
Types of an Injunction
There are basically two types of injunction as provided by section 36 of the Specific Relief
Act, 1963. Section 36 of the Specific Relief Act with the head ‘Preventive relief how granted’
reads as, “Preventive relief is granted at the discretion of the court by injunction, temporary
or perpetual”. As per provisions of section 36 injunctions are either temporary (interlocutory)
or perpetual.
Temporary and perpetual injunctions are defined under Section 37 of the Specific Relief Act
which reads as:
“(1) Temporary injunctions are such as to continue until a specified time, or until further
order of the court and they may be granted at any stage of a suit, and are regulated by the
Code of Civil Procedure, 1908.
(2) A perpetual injunction can only be granted by the decree made at the hearing and upon
the merits of the suit, the defendant is thereby perpetually enjoined from the assertion of a
right, or from the commission of an act which would be contrary to the rights of the plaintiff”.
Temporary Injunctions
The procedure for granting temporary injunctions is not governed by the Specific Relief Act,
1963 but governed by the rules laid down in Order XXXIX, Rules 1 and 2 of Civil Procedure
Code which reads as follows.
“A temporary injunction may be granted in the following cases:
1. For the protection of interest in the property
This category will cover the following cases
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a) That property in dispute is in danger of being wasted or alienated by any party to the suit
or wrongfully sold in execution of a decree; or b) That the defendant threatens to remove or
dispose of his property with a view to defraud his creditors; and
c) That the defendant threatens to dispossess the plaintiff or otherwise cause injury to the
plaintiff in relation to any property in dispute in the suit.”
The court may by the order grant an interlocutory injunction to restrain such act or make
such order for the purpose of staying and preventing the damage of wasting, alienation,
sale or disposition of the property as the court thinks fit until the disposal of the suit.
2. Injunction to restrain, repetition or continuance of breach (1) In any suit for
restraining the defendant from committing a breach of contract or other injury, of any kind,
whether compensation is claimed in the suit or not, the plaintiff may at any time after the
commencement the suit and either after or before judgement, apply to the court for a
temporary injunction to restrain the defendant from committing the breach of contract or an
injury complained of, or any breach of contract or injury arising out of same contract.
Discretionary Relief
It is to be noted that grant of an injunction is at the discretion of the court i.e. it is not the
right of an individual to get the injunction. Section 36 expressly lays down that, “Preventive
relief is granted at the discretion of the court by an injunction, temporary or perpetual”.
Therefore the court will grant a temporary injunction if the following conditions are satisfied
by the case:
1. The plaintiff must be able to establish a prima facie case. He is not required to establish
the clear title but a substantial question that requires to be investigated and that matter
should be preserved in the same status as it is until the injunction is finally disposed of.
2. An irreparable injury may be caused to the plaintiff if the injunction is refused and that
there is no other remedy open to the applicant by which he could protect himself from the
feared injury.
3. The balance of convenience requires that the injunction should be granted and
compensation in money would not serve an adequate relief. It is to be noted that it is a
settled principle of law that if in a suit where there is no permanent injunction sought for in
the final analysis, ordinarily a temporary injunction cannot be granted. So, the principles that
govern the grant of a perpetual injunction would govern the grant of a temporary injunction
also.
In Ishwarbhai v Bhanushali Hiralal Mohanlal Nanda case where in a suit for specific
performance, there was no prayer for a decree of perpetual injunction restraining the
defendant from transferring the suit land by way of sale till the disposal of the suit. But the
plaintiff in a suit prayed for a temporary injunction which was not granted because of the
settled principle.
Perpetual Injunction
Section 37(2) of the Specific Relief Act, 1963 lays down that a permanent injunction can
only be granted by a decree at the hearing and upon the merits of the case. In simple
words, for obtaining a permanent injunction, a regular suit is to be filed in which the right
claimed is examined upon merits and finally, the injunction is granted by means of
judgement. A permanent injunction therefore finally decides the rights of a person whereas
a temporary injunction does not do so. A permanent injunction completely forbids the
defendant to assert a right which would be contrary to the rights of the plaintiff.
Section 38 of the Specific Relief Act, 1963 specifies certain circumstances under which
permanent injunction may be granted. Section 38 with the head ‘Perpetual injunction when
granted’ reads as,
“(1) Subject to the other provisions contained in or referred to by this chapter, a perpetual
injunction may be granted to the plaintiff to prevent the breach of an obligation existed in his
favour or by implication.
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(2) When any such obligation arises from the contract, the court shall be guided by the
provisions and rules contained in chapter II (specific performance). (3) When the defendant
invades or threatens to invade the plaintiff’s right to, or enjoyment of, property, the court
may grant the perpetual injunction in the following cases, namely Where the defendant is the trustee of the property of the plaintiff.  Where there exist no
standards for ascertaining the actual damage caused, or likely to be caused by an
invasion.
 Where the invasion is such that compensation in money would not afford adequate relief.
 Where the injunction is necessary to prevent multiplicity of judicial proceedings.”
Major Differences between Temporary Injunction and Perpetual Injunction
Temporary Injunction
Perpetual Injunction
A temporary injunction is to continue until
A permanent injunction can only be
a specified time, or until the further order
granted by a decree made at the hearing
of the Court. It is granted at any period of
and
upon
the
merits
of
.the
suit. Temporary injunction is regulated by
suit. Permanent injunction is regulated by
Rules 1 to 5 of Order 39 of C.P.C.
the Specific Relief Act, 1963 in Sections
38 to 42.
It is provisional in its nature. It cannot
conclude the right.
Permanent injunction finally determines the
rights of the parties and forms part of the
decree made at the hearing.
It can be granted at any stage of the
suit.
It may be granted to the plaintiff on his
making out a prima facie case in his
support.
A temporary injunction can be
granted at the discretion of the Court,
and upon certain circumstances of
the case.
It can only be granted at final
stage/hearing of the suit.
A perpetual injunction is granted upon
the merits of the suit.
A temporary injunction is a mere order.
A perpetual injunction is a decree.
The Court, who issues it, can withdraw it, at
any stage, until a final order or decree is
ordered.
A temporary injunction is temporary nature
as its name itself implies.
The court which issues a permanent
injunction cannot withdraw it, after its
declaration
A perpetual injunction is permanent in
nature, final decree as its name itself
impiies. (Perpetual = Permanent).
In granting a perpetual injunction the Court
must hear both the parties of the suit
Generally a temporary injunction is granted
after hearing from the plaintiff side only.
Defendant is not heard. Sometimes the
defendant is also heard.
Acquiescence, delay or laches on the part
of the plaintiff cannot entitle him to obtain
the temporary injunction.
A permanent injunction can only be granted
upon the merits of the case and at final
hearing of the suit.
The plaintiff may give sufficient
reasons for delay, laches, and
acquiescence
on
certain
circumstances, if it satisfies
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4. Discuss the various modes of discharging the contract.
Ans.:A contract is said to be discharged when the object or obligations is fulfilled, the liability of
either party under the contract comes to an end. In other words discharge of contract
means “termination of the contractual relationship between the parties”. This is why the
rights and duties in terms of contractual obligations were set up, when the parties originally
entered into the contract.
There are various modes of discharge of contract like either in positive way i.e., by
performance or in negative way i.e., by breach.
Discharge of Contract
Discharge of contract refers to the way in which it comes to an end. The various modes of
discharge of contract or the different ways are as follows:
 Discharge by performance
When the respective parties of the contract perform their shares of the promises, it is said to
be the contract is discharged. It is called as natural mode of discharge.
Performance may be:
1. Actual Performance: Under the contract, when all the parties to a contract do what they
had agreed for, it is known as actual performance.
2. Attempted Performance (tender or offer of performance): When the promisor attempts to
perform his promise, the promisee refuses to accept the same, it is known as tender or
attempted performance.
 Discharge by agreement or consent
Section 62 of the Indian contract, 1872 provides that “if the parties to a contract agree to
substitute a new contract for it, or to rescind or alter it, the original contract need not be
performed” under the heading- Effect of novation, rescission and alteration of contract.
There are six types through which discharge of contract through agreement or consent
could take place are mentioned below:
 Novation
When the parties to a contract agree to substitute the existing contract with a new contract,
that is called novation.
In the well known case of Scarf v. Jardine, the meaning and effect of novation are explained
by Lord Selborne.
Hence novation is of two kinds, namely:
 A novation involving change of parties.
 A novation involving substitution of a new contract in place of the old.
 Alteration
When one or more of the terms of the contract is/are altered by mutual consent of the
parties to the contract, is called as alteration of a contract. In the case of United India
Insurance Co. Ltd v. M.K.J. Corporation, it was held that even in good faith also in terms of
the contract, no material alteration can be made by a party without the consent of the
other. In Kalianna Gounder v. Palani Gounder, the Supreme Court considered the meaning
of the expression “material alteration”.
 Rescission
When all or some of the terms of the contract are canceled, that is known as rescission of a
contract.
 Remission
Section 63 of the Indian Contract Act, 1872 talks about the discharge of a contract by
remission. It means the acceptance of lesser sum than what was due from the promisor or
acceptance of a lesser fulfillment of the promise made.
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 Waiver
Under an agreement, when an individual surrendering a few or the majority of their
legitimate rights, it is known as waiver. The Supreme Court has already laid down that
waiver is the abandonment of a right which normally everybody is at liberty to waive.
 Merger
When an inferior right accruing to a party under contract merges into a superior right
accruing to the same party under a new contract.
 Discharge by impossibility of performance
1. Initial Impossibility: As per section 56 of the Indian Contract Act, 1872 “An agreement to
do impossible act is void ab-initio.” It means agreement which is obviously impossible
cannot be binding.
2. Subsequent Impossibility: A contract sometimes becomes impossible or unlawful and as
a result void when capable to be performed after formation.
 Discharge by lapse of time
Specified period for performance of a contract prescribed by The Limitation Act, 1963. If the
contract is not performed and no legal action is taken by the promisee within the period of
limitation, the contract is discharged and he is deprived of his remedy at law.
 Discharge by operation of law
A contract can be discharged by operation of law which includes insolvency or death, of the
promisor and also merger, judgement of court.
 Discharge by breach of a contract
Breach of contract means failure to perform contractual obligation by either of the parties
without any lawful excuse, the contract discharged because it is a ground for discharge of a
contract.
Hence breach is of two kinds, namely:
 Actual Breach: It refers to the failure to perform contractual obligation when performance
is due and during the performance of the contract. In the case of an actual breach, the
promisee retains his right of action for damages.
 Anticipatory Breach: It takes place before the date of actual performance. In anticipatory
breach, the promisee cannot file a suit for damages and even it discharges the promisor also
from performing his part of the contract. It may take place in two ways: Expressly by words
and Implied by the conduct.
In the case of Hochster v. De La Tour, the respective parties made the contract in April, in
which the defendant agreed that the claimant on a foreign tour should act as his courier,
due to begin on 1st june but on 11th may, the defendant informed the claimant that his
services would not be required. It was held that the claimant can sue for damages
immediately and he did not have to wait for the performance date.
In Bowdell v. Parsons, it was held that if a man contracted to sell and deliver specific goods
on a future day and before the day he sells and delivers them to another, he is immediately
liable to an action at the suit of the person with whom he first contracted to sell and deliver.
Conclusion
It is concluded that Discharge of contract is referred when, there is a need to put an end to
a contract like two parties Y and Z make a contract to build a fly-over in the city Varanasi.
Where Y is the municipal authority of the city and Z is a construction company but due to
some reasons the contract get discharged. Then in this case the both parties are free from
the obligations of contract, i.e. the rights and obligations of the parties come to an end.
Various modes or ways were also available for discharging a contract but the best way to
discharge a contract is based on performance as in this way both the parties follow all the
terms of contract and then go for its discharge and on the other hand discharge by breach is
the most unpleasant way to release the parties from duties as it leads to damages too.
13
5. (a) What is specific relief?
(b) What are the contracts which can be specifically
enforced?
(c) What are the contracts which cannot be specifically
enforced?
(a) When a person has withdrawn himself from the performance of a particular promise or a
contract with respect to another person, the other person so aggrieved is entitled to a
specific relief.
To be understood in a simpler way specific relief is related to providing relief for the
infringed civil rights of the individual. Its main objective is to focus on the rights and if there
is any penal nature of the case, it may have to be established for proving the same.
The Law of Specific Relief in India was originally codified by Specific Relief Act, 1877. The
provision of this enactment was considered by the Law Commission in its Ninth Report
which was later replaced by the present act of 1963. The Specific Relief Act, 1963 deals
with the remedies granted at the discretion of the court for the enforcement of individual civil
rights. In case of breach of contract, the general remedy available to the aggrieved party is
compensation or damages of loss suffered. For this, a civil suit is filed against the guilty
party who had made the default in performance of its duty or obligation as per the terms of
contract under the statutory provision of Section 73-75 of Indian Contract Act 1872.
However, sometimes pecuniary compensation does not satisfy the plaintiff so he may ask
for specific relief. For example if somebody unlawfully dispossess a person without his
consent having peaceful possession over the property then specific relief may enable him
to have the possession of same property instead of claiming pecuniary compensation.
The Act provides the following kinds of specific relief
 Recovery of possession of property
 Specific performance of contracts
 Rectification of instruments
 Rescission of contracts
 Cancellation of Instruments
 Declaratory decrees
 Injunction
(b) Contracts which can be specifically enforced
Specific Performance of Contracts
Specific performance means enforcement of exact terms of the contract. Under it the
plaintiff claims for the specific thing of which he is entitled as per the terms of contract. For
example, if A agrees to sell certain shares to B of a specific company which are limited in
number and after the payment made by B, if A refuses to sell the shares then B is entitled to
recovery of those shares.
According to Section 10 of Specific Relief Act 1963 in the following conditions specific
performance of the contract is enforceable:
 When there exist no standard for ascertaining actual damage: It is the situation in which
the plaintiff is unable to determine the amount of loss suffered by him. Where the damage
caused by the breach of contract is ascertainable then the remedy of specific performance
is not available to the plaintiff. For example, a person enters into a contract for the
purchase of a painting of dead painter which is only one in the market and its value is
unascertainable then he is entitled to the same.
 When compensation of money is not adequate relief: In following cases compensation of
money would not provide adequate relief:
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1.Where the subject matter of the contract is an immovable property. 2.Where the subject
matter of the contract is movable property and, 3.Such property or goods are not an
ordinary article of commerce i.e. which could be sold or purchased in the market.
4.The article is of special value or interest to the plaintiff. 5.The article is of such nature that
is not easily available in the market. 6.The property or goods held by the defendant as an
agent or trustee of the plaintiff.
In Case of Ram Karan v. Govind Lal, an agreement for sale of agricultural land was made &
buyer had paid full sale consideration to the seller, but the seller refuses to execute sale
deed as per the agreement. The buyer brought an action for the specific performance of
contract and it was held by the court that the compensation of money would not afford
adequate relief and seller was directed to execute sale deed in favour of buyer.
Similarly, it was held by the court where the part payment was paid by plaintiff and
defendant admitted that he had handed over all documents of title of property to the plaintiff.
Sale price in an agreement is not low and defendant had failed to establish that said
document was only a loan transaction then the agreement is valid and defendant is liable to
perform his part (M. Ramalingam v. V. Subramanyam).
(c )Contracts which cannot be specifically enforced
According to Section 14 of Specific Relief Act 1963, there are certain contracts which
cannot be specifically enforced and these are:
 Where compensation in money is an adequate relief: Here the court
will not order specific
performance of contract as it is expected that the plaintiff will bank upon the normal remedy
for breach of contract i.e. remedy of compensation. For example contract of mortgage of
immovable property (Rambai Vs. Khimji), contract of sale of goods (Bharat
Vs. Nisarali), contract of repair of premises etc.
 Where a contract runs into minutes or numerous detail: These contracts includes contract
which depends upon the personal qualification or the violation of the parties or is of such
nature that the court cannot enforce specific performance of its material terms. In Robinson
Davison, it was held by the court that the contract to perform in concert depends upon the
personal kill of defendant’s wife, and the contract cannot be specifically enforced due to her
illness. The other example is construction contract where the detailed terms of contract are
not explained.
 Contracts of determinable nature: Determinable contract means a contract which can be
determined or revoked or put to an end by a party to the contract. For example in case of
partnership at will any partner can retire by giving notice in writing to other partners and can
dissolve the firm.
 Contracts which involve the performance of continuous duty which court cannot supervise:
Earlier under Specific Relief act, 1877 the continuous duty which court cannot supervise is
considered over a period of 3 years which was omitted under Specific Relief Act, 1963 and
no time limit restricted for the performance of a continuous duty. These include contract of
appointment of employees for continuous service or contract to execute sale deed every
year. In Central Bank v. Vyankatesh, the defendant was required to execute deed every
year for the period of 25 years and contract is held to be specifically unenforceable.
 Contract of arbitration: According to Section 14(2), a contract to refer present or future
differences to arbitration shall not be specifically enforceable.
However, Section 14(3) contains certain exception and the following
kinds of contract are specifically enforceable
1. A contract to execute a mortgage or furnish other security for repayment of any loan
which the borrower is not willing to repay at once, the court would grant specific
performance to execute mortgage or to give any other security.
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2. A contract to take up and pay for any debentures of a company. 3. A contract to
execute a formal deed of partnership at will when the business has already
commenced.
4. A contract for the construction of any building or the execution of any other work on
land if;
5. Detailed or the terms of the contract has been sufficiently explained & the court can
determine the exact nature of building or work. 6. The plaintiff has a substantial interest in
performance of the contract and compensation in money is not an adequate relief.
7. The defendant has in accordance with the contract, obtained possession of whole or
part of the land on which the building is to be constructed or other work is to be
executed.
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6. What is Consideration in Contract? Essentials ?
Meaning of Consideration in Contract: – 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 in a contract for the promise. Consideration is the foundation of
every contract. The law insists on the existence of consideration if a promise is to be
enforced as creating legal obligations. A promise without consideration is null and void.
Consideration means “something in return“. When at the desire of the promissory, the
promise or any other person has done or abstained from doing or does or abstains from
doing or promise to do or abstain from doing. Something such act or abstinence or promise is
called a consideration in contract for the promise. This is the price paid for the contract. It
should be valid. The contract is void without consideration. Consideration is necessary for the
formation of a contract.
Consideration in contract must be of value and is exchanged for the performance or
promise of performance by the other party (such performance itself is consideration).
Contracts may become unenforceable for failure of consideration when the intended
consideration is found to be worth less than expected, is damaged or destroyed, or
performance is not made properly. Acts which are illegal or so immoral that they are against
established public policy cannot serve as consideration for enforceable contracts.
For Example: – In the contract for the sale of a car, the price paid for the car is
a consideration.
Section 2(d) of the Indian Contract Act, 1872
Meaning of Consideration: – Section 2(d) of Indian Contract Act states that, “when on the
will of the promisor, the promisee or any other person has done or abstained from doing,
promised to do or abstains from doing anything, such act or abstinence or promise is said to
be known as consideration of a promise”.
If the promisee does either of the two below-mentioned act on the promisor’s will,
 Does something (past, present or future) or
 Abstain from doing something (in the past, present or future)

1.
Example 1- Doing something: –
Peter and John enter into a contract where Peter promises to give John 15 curtains in a
month. Also, John promised to pay Peter Rs 3,000 on delivery. In this contract, John’s
promises to pay 3,000 rupees is the consideration for Peter’s promise. Also, Peter’s promise
to give 15 curtains is the consideration of John’s promise to pay.
2.
Example 2- Abstain from doing something: –
Peter has taken a loan from his friend John. However, he has not yet paid the debt. John
promises not to file a lawsuit against Peter if he promises to repay the loan within a week. In
this case, the restraint on behalf of John is due to Peter’s consideration of his promise to
repay the loan.
The different kinds of Consideration in contract
There are three kinds of consideration in contract, as follows: –
1.
Past consideration
2.
Present consideration
3.
Future consideration
Explanation: –
1.
Past Consideration: –
Past consideration is something which is completely done by the promisee even before
making of agreement. It is supported by the future promise.
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For example: – ‘X’ was a child and at his will, ‘Y’ provided him with certain commodities. ‘X’
promises ‘Y’ that after attaining the age of majority ‘X’ will compensate ‘Y’ for what he did in
the past.
In English Law, there is no past consideration.
2.
Present Consideration: –
If the promise and the consideration are together, then it is the present or executed
consideration.
Example:- ‘A’ went to a shop to buy some vegetables from the shop keeper ‘B’. In return ‘A’
gave money to ‘B’ on the spot. In this case, the consideration is the present consideration.
3.
Future Consideration: –
When consideration for a promise moves after the contract is formed, it is the future
consideration. It is also valid if it depends on the situation.
Example:– Peter has promised to make architectural plans for John’s new house. John
promises to pay Peter Rs. 50,000, provided that his wife approves the plans.
The essentials of a valid consideration in contract law
According to Section 2 (d) of the Indian Contract Act, the following essentials are required for
valid consideration: –
1.
Consideration should be made at the Promisor’s Desire: – Only at the request or
desire of the promisor, consideration can be offered by the promisee only. If an act is done at
the desire or will of the third-party, then it is not a consideration. In order to constitute legal
consideration, the act or abstinence forming the consideration for the promise must be done
at the desire or request of the promisor. Thus acts done or services rendered voluntarily, or
at the desire of third party, will not amount to valid consideration so as to support a contract.
2.
Consideration may move from the Promisee to Any Other Person: – The second
essential of valid consideration, as contained in the definition of consideration in Section 2(d),
is that consideration need not move from the promisee alone but may proceed from a third
person. This essentially means that in India, consideration can move beyond promising
another person. However, it is important to note that there may be no stranger to the contract
but there can be a stranger to consideration. Thus, as long as there is a consideration for a
promise, it is immaterial who has furnished it. It may move from the promisee or from any
other person. This means that even a stranger to the consideration can sue on a contract,
provided he is a party to the contract. This is sometimes called as ‘Doctrine of Constructive
Consideration’.
3.
It can be in the Past, Present or Future: – The words, “has done or abstained from
doing; or does or abstains from doing; or promises to do or to abstain from doing,” used in
the definition of consideration clearly indicate that the consideration may consist of either
something done or not done in the past, or done or not done in the present or promised to be
done or not done in the future. To put it briefly, consideration may consist of a past, present
or a future act or abstinence.
Past consideration: – When something is done or suffered before the date of the agreement,
at the desire of the promisor, it is called ‘past consideration.’ It must be noted that past
consideration is good consideration only if it is given by the promisee, ‘at the desire of the
promisor. It is important to note that the consideration is given in the past because it is not
given in exchange for the promise. According to Indian law, a ‘past consideration’ is a ‘good
consideration’ if it was given at the will of the promissor.
Present consideration: – Consideration which moves simultaneously with the promise is
called ‘present consideration’ or ‘executed consideration’. If the promise and the
consideration are together, then it is the present or executed consideration. An example is
Peter goes to a store, buys a bag of chips and pays for the same on-spot.
Future Consideration: – When the consideration on both sides is to move at a future date, it
is called ‘future consideration’ or ‘executory consideration’. When consideration for a promise
moves after the contract is formed, it is the future consideration. It consists of an exchange of
18
promises and each promise is a consideration for the other. It is also valid if it depends on
the situation. Peter has promised to make architectural plans for John’s new house. John
promises to pay Peter Rs. 50,000, provided that his wife approves the plans.
4.
It must have value in the eyes of the law: – The fourth essential of valid
consideration is that it must be ‘something’ to which the law attaches a value. The
consideration need not be adequate to the promise for the validity of an agreement. While
the law allows the parties to decide a ‘substantial’ consideration for them, it must be genuine
and must have value in the eyes of the law. Although the Court will not consider the
inadequacies, it will look to determine whether the will of the party is free or not.
5.
It must not be unlawful: – According to section 23 of the Indian Contract Act, an
agreement which has unlawful consideration is considered to be void. A consideration that is
against the law or public policies is not valid. Peter offered John Rs. 10,000 to beat his
business rival. John kills him but Peter refuses to pay him. John cannot sue for recovery
because the idea is against the law.
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7. What is Privity of Contract? EXCEPTIONS.
Meaning of Privity of Contract: – The principle of privity of contract states that, only
the contracting parties can enforce the contract or take action against it. A person who is
not a party to the contract but have certain benefits from the contract, is not entitled to take
any enforcement action. As a general rule, contractual rights and liabilities only affect the
parties to the contract and not the other person, who is not a party to the contract. A contract
cannot impose rights and liabilities on a person who is not a party to the contract.
For example: – If ‘B’ promises ‘A’ to give 100 rupees to a third party ‘C’. Thus, ‘A’ and ‘B’
can sue each other in case of breach of contract. However, ‘C’ cannot sue the parties. This is
known as the privity of contract.
Different courts in India have different views about the concept of privity of contract. There
have been cases where the third party has not sued in case of default due to the operation of
the privity of contract rule, while there are some cases where the rule of privity of the contract
is completely disregarded. Therefore, the rule of privity of contract is the subject of great
debate among scholars.
The exceptions to the doctrine of privity of contract
There are some exceptions to the principle of privity of contract where the third party is
allowed to enforce the contract, as follows: –
1.
Agency: –
In the case of a principal-agent relationship, which is between the third party and the
contracting party, here the third party is the principal party who has expressly consented that
the other has to act on his behalf and the contracting party is the agent who consents to act
in that manner. The third-party, who is the principal party, can also enforce the contract.
2.
Family Settlement: –
If a contract is made under a family arrangement to benefit a stranger (person not a party to
the contract), then the stranger can sue in his own right as a beneficiary of the contract.
For Example: – Peter promised Nancy’s father that he would marry Nancy else would pay Rs
50,000 as damages. Eventually, he married someone else, thereby breaching the contract.
Nancy filed a case against Peter which was held by the Court since the contract was a family
arrangement with Nancy as the beneficiary.
3.
Trust: –
If a contract is made between the trustee of a trust and another party, then the beneficiary of
the trust can sue by enforcing his right under the trust, even if he is a stranger to the contract.
If one party ‘A’ promises the ‘B’ for the benefit of ‘C’. Here, ‘C’ can enforce the contract
because ‘B’ is the trustee of ‘C’.
Arjun’s father had an illegitimate son, Ravi. Before he died, he put Arjun in possession of his
estate with a condition that Arjun would pay Ravi an amount of Rs 500,000 and transfer half
of the estate in Ravi’s name, once he becomes 21 years old. After attaining that age when
Ravi didn’t receive the money and asked Arjun about it, he denied giving him his share. Ravi
filed a suit for recovery. The Court held that a trust was formed with Ravi as the beneficiary
for a certain amount and share of the estate. Hence, Ravi had the right to sue upon the
contract between Arjun and his father, even though he was not a party to it.
A person can become a trustee of a contract if he fulfills the following conditions: –
 There should be an intention of the party to create trust.
 The intention is to benefit a third party and not all the third parties.
4.
Assignment of a Contract: –
If a contract is made for the benefit of a person, then he can sue upon the contract even
though he is not a party to the agreement. It is important to note here that nominees of a
life insurance policy do not have this right.
20
5.
Acknowledgment or Estoppel: –
If a contract requires that a party pays a certain amount to a third-party and he/she
acknowledges it, then it becomes a binding obligation for the party to pay the third-party. The
acknowledgment can also be implied.
For Example: – Peter gives Rs 1,000 to John to pay Arjun. John acknowledges the receipt of
funds to be paid to Arjun. However, he fails to pay him. Arjun can sue John for recovery of
the amount.
6.
Collateral Contract: –
If the contract is the collateral contract, all the parties who are involved in collateral contract
can enforce the contract. the party involved in the contract are as follows: –
 Manufacturer
 Seller and Purchasor
For Example: – If ‘A’ purchases goods from ‘B’, there is a contract between ‘A’ and the
manufacturer of the goods.
7.
The Sale of Defective Goods: –
One exception to privity is manufacturers’ warranties for their products. It used to be the case
that a lawsuit for breach of warranty could only be brought by the party to the original
contract or transaction; so, consumers would have to sue retailers for faulty goods because
no contract existed between the consumer and the manufacturer.
Now, under modern doctrines of strict liability and implied warranty, the right to sue has been
extended to third-party beneficiaries, including members of a purchaser’s household, whose
use of a product is foreseeable.
8.
A Covenant Running with the Land: –
When a person purchases a piece of land with the notice that the owner of the land will be
bound by all duties and liabilities affecting the land, then he can sue upon a contract between
the previous land-owner and a settler even if he was not a party to the contract.
For Example: – Peter owned a piece of land which he sold to John under a covenant that a
certain part of the land will be maintained as a public park. John abided by the covenant and
eventually sold the land to Arjun. Though Arjun was aware of the covenant, he built a house
in the specific plot. When Peter came to know of it, he filed a suit against Arjun. Although
Arjun denied liability since he was not a party to the contract, the Court held him responsible
for violating the covenant.
Case laws under Consideration in contract
1.
Rana Uma Nath Baksh Singh vs. Jang Bahadur (1939) 41 BOMLR 659
Facts of the Case: – In this case, Rana Uma Nath Baksh Singh was given possession of the
entire property by his father. In return, Rana Uma Nath Baksh Singh had to give some money
and a village to his father’s illegitimate child Jung Bahadur.
The Judgement of the Case: – It was held in this case that trust was formed for the benefit of
Jung Bahadur and hence he is entitled to enforce the contract.
2.
White vs. Bluett
Facts of the Case: – In this case, a father promised his son that if he stopped complaining
about the portion of the property given to him, he would release him from his debts.
The Judgement of the Case: – However, it was held by the court that the consideration was
not a good consideration and therefore the son was found liable for the debt.
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8. What is an offer or proposal?
Meaning of Offer or Proposal: – When one person signifies his willingness to do or to
abstain from doing something with a view of obtaining the assent of others, he is said to
make an offer or proposal. The term ‘Offer or Proposal’ has been defined in Section 2(a)
of the Indian Contract Act, 1872.
For Example: – A’s willingness to sell his radio set to ‘B’ of worth Rs. 500, if ‘B’ accepts the
purchase of the same, then it will amount to a proposal from ‘A’ to ‘B’.
But if a statement is made without any intention to obtain the acceptance of the other party
then it will not be considered a proposal.
The Agreement (Offer and Acceptance)
Meaning of an Agreement: – An agreement between the parties is one of the essentials for
creating a contract. An agreement is a promise between two entities creating mutual
obligations by law. According to section 2(e) of the Act, every promise and every set of
promises forming the consideration for each other is an agreement. An agreement arises by
an ‘offer or proposal’ by one party and the ‘acceptance’ of the same by the other. In an
agreement, there are promises from both the sides.
The essentials of an Offer or Proposal
The essentials of an Offer or Proposal under Indian Contract Act are as follows: –
1.
The
person
who
is
making
the
offer
or
proposal
is
known
as “promisor” or “offeror” and the person who accepts such an offer will be
a “promisee” or “acceptor”.
2.
The proposer must express his/her willingness to do or carry out an action. Only desire
is not enough or simply the desire to do/not do something will not constitute an offer.
3.
An offer can be positive or negative. It can be a promise to do some work, and a
promise to abstain (not do) some work/service. Both are valid offers.
Communication of Offer

Offer must be communicated: – Section 2 (a) of the Indian Contract Act, 1872,
explains that a person makes an offer or proposal “when he signifies (show) his willingness
to do or to abstain from doing something”. The emphasis here is upon the requirement that
the willingness to make a proposal should be “signified” or “showed”. The term signifies
means to communicate or to make it known. It thus requires that the offer must be
communicated to the person i.e., the offeree.

Offer How Communicated: – The proposal needs to be communicated to the other
party so that its acceptance may constitute a contract. Section 3 of the Indian Contract
Act defines the offer and acceptance of a contract. If an offer is sent by the post, it will have
no effect until it reaches the offeree.

Communication of Offer (When completes): – An offer to be valid must be
communicated. Section 4 of the Indian Contract Act, 1872 says that “the communication of a
proposal is complete when it comes to the knowledge of the person for whom it is made”.
Communication must be done in some general and appropriate manner.
An offer cannot be accepted unless and until it has been bought to the knowledge of the
person for whom it is made. For example: ‘A’ cannot be said to make an offer to ‘B’ unless ‘A’
brings the offer to the knowledge of ‘B’. Here, ‘B’ cannot be said to have accepted the offer,
even if he acts according to the term of the offer. Thus, ignorance of an offer does not
amount to acceptance of the offer.
The different types of offers
22
1.
Specific Offer: – A specific offer refers to a proposal made to a specific person or
group of individuals. It can only be accepted by the person or group of persons to whom it is
made.
2.
General Offer: – When an offer is made to the general public, it is called a general offer
and can be taken up by anyone who wishes to fulfill the terms of the offer. When the person
who accepts the offer to whom it is directed, the offeror and the offeree enter into the
contract. If the offer is accepted by a large number of people, then the number of contracts
formed will be equal to the number of individuals who accept the offer. If a reward is offered
for completing a certain task, only the person who completes the task can accept the offer.
3.
Express Offer: – Section 9 of the Indian Contract Act says that “An offer would be an
expressed offer when it is made by words of mouth or by writing”. An offer when assented by
both parties become an agreement. An agreement when enforceable by law/courts becomes
a contract.
4.
Implied Offer: – As mentioned in Section 9, an offer made otherwise than in words is
said to be an implied offer. It is an offer incurred from the conduct of the party. For example:
A bit at an auction is an implied offer or when a bus company runs buses on a particular
route inviting passengers over the route at scheduled fares. The offer of the company is an
implied offer.
5.
Cross Offer: – When two parties make similar offers in all respects to each other, in
ignorance of each other’s offer, it is called cross offer. In a cross offer both parties state to
each other the same proposal. For example: An offer made by ‘A’ to sell to ‘B’ on certain
terms and an offer by ‘B’ to buy from ‘A’ on the same terms unaware of the A’s proposal at
that time, is an example of a cross-offer.
6.
Counter Offer: – On the other hand, in counter offer there is a rejection of the
original offer and a new offer is made that needs acceptance by the original promisor before
a contract can be made.
7.
Standing, Open and Continuous Offer: – An offer which is allowed to remain open for
acceptance over a period of time is known as a standing, open and continuous offer. When a
company requires large quantities of products from time to time, it usually invites tenders for
the supply of products through an advertisement. Such a tender or offer is referred to as a
standing, open and continuous offer.
Revocation of offer or proposal
Meaning: – A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards. An acceptance may be
revoked at any time before the communication of the acceptance is complete as against the
acceptor, but not afterwards.
According to Section 5 under Indian Contract Act, “A proposal may be revoked at any time,
before the communication of its acceptance is complete, but not afterwards”.
A contract forms only after the acceptance of an offer and then both the parties are bound by
their respective promises. Before the acceptance of the offer, it can be revoked. After the
acceptance of the offer by the other party, it cannot be revoked.
For example: – A resignation is an offer to quit a post and the same can be withdrawn
before the offer is accepted by the competent authority.
Withdrawal of Bids: – In case of sale by auction, the bids made at the auction are offers
and the highest offer may be accepted by the auctioneer (agent). In such a case the sale is
complete when the auctioneer announces its completion by the fall of the hammer and any
bidder can withdraw his bid before the announcement is made. Once the communication of
acceptance is complete and a contract has come into existence, the question of revocation of
offer does not arise.
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The modes of revocation of an offer or proposal
A proposal is revoked by following modes: –

By notice of revocation

By lapse of time

By failure to fulfill a condition precedent

By death or insanity of the offeror
Explanation
1.
By notice of revocation: – A proposal may be revoked by the communication of
notice of revocation by the proposer to the other party. Notice of revocation will be effective
only if it has been communicated by the proposer (or his agent) and not by anybody else. On
this point, English Law is different from Indian Law. In India, the notice of revocation has to
be communicated by the proposer only, whereas in english law the offer stands revoked
even though the offeree comes to know about it through some other sources and not by the
offeror himself.
2.
By lapse of time: – A proposal is revoked by the lapse of the time prescribed in such
proposal for its acceptance, or, if no time is so prescribed it can be revoked by the lapse of
reasonable time, without communication of acceptance. No-acceptance within a reasonable
time means an implied refusal by the offeree to accept the offer.
3.
By failure to fulfill a condition: – When there is some condition with the offer, such a
condition has to be fulfilled by the acceptor before making the acceptance. If the acceptor
fails to fulfill the condition precedent to acceptance, the offer stands revoked.
4.
By death or insanity of the offeror: – An offer can be revoked by the death or insanity
of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor
before acceptance. It means that if the fact of death or insanity has not come to the
knowledge of the offeree while he accepts the offer, it is valid acceptance giving rise to the
contractual obligations.
Case laws under Offer or Proposal
1. Merritt vs. Merritt
Facts of the case: – The husband and wife were the joint owners of a building which was
subject to a mortgage to a building society. The husband left the matrimonial home to live
with another woman. At that time, the husband signed a note saying that the wife will pay the
entire outstanding amount in respect of the house and in return he will transfer the soled
ownership of property into her name.
Judgment of the case: – In this case, the court held that it was clear that the parties
intended to create a legal relationship and, therefore, the husband was bound by the
contract.
2. Krishnaveni Constructions vs. The X.E.N., Panchayat Raj, Darsi,
In this case, the court held that an offer containing a promise to keep the offer to open for a
certain period could be withdrawn unless such a promise was supported by consideration.
The condition that a tender cannot be withdrawn before it was accepted, is invalid.
Meaning of Acceptance
– Acceptance in contract law refers to the promise or act of a buyer who shows
his willingness to be bound by the terms and conditions specified in a seller’s offer.
Acceptance is a necessary element of a legally binding contract. If there is no acceptance,
there is no deal. An acceptance may be conditional, express or implied. When it comes to
business dealings, formal contracts can be too boring for a busy schedule.
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. A proposal when accepted, results in an
agreement. It is only after the acceptance of the proposal that a contract between the two
parties can arise.
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So as the definition states, when the offeree to whom the proposal is made, unconditionally
accepts the offer it will amount to acceptance. After such an offer is accepted the offer
becomes a promise.
Say for example ‘A’ offers to buy B’s car for rupees two lakhs and ‘B’ accepts such an offer.
Now, this has become a promise.
When the proposal is accepted and it becomes a proposal it also becomes irrevocable. An
offer does not create any legal obligations, but after the offer is accepted it becomes a
promise. And a promise is irrevocable because it creates legal obligations between parties.
An offer can be revoked before it is accepted. But once acceptance is communicated it
cannot be revoked or withdrawn.
When the proposal or acceptance is made in words, the promise is said to be express. When
the proposal or acceptance is made otherwise than in words, the promise is said to be
implied.
Types of Acceptance in contract law
Following are the types of acceptance in contract law: –
1.
Conditional Acceptance: – Conditional acceptance also referred to as a qualified
acceptance, occurs when a buyer tells the seller that he will accept the offer provided that
some adjustments are made in its terms. This type of acceptance is a counteroffer.
Counteroffers need to be accepted by sellers before contracts can be made between parties.
For instance, a customer buys an item for $3,000 on Craigslist, and the seller replies, “I
accept your offer provided that you also pay the delivery fee.” The seller places a condition
on the sale, and if the customer does not pay for the delivery fee, the offer is no longer
acceptable.
2.
Express Acceptance: – Express acceptance occurs when an individual clearly and
explicitly expresses his willingness to accept an offer. Examples of express acceptance
include signing a contract, orally accepting the offer, shaking hands, or even exchanging
business cards with the offer and accepted terms.
3.
Implied Acceptance: – Implied acceptance is an acceptance that is not directly
stated but is demonstrated by any acts that indicate an individual’s willingness to accept an
offer. Typically, it happens only when an agreement has already been set between a buyer
and seller. It doesn’t involve a contract, but rather is oral or action-based in nature.
The effect of acceptance
A contract is formed only at the acceptance of the offer. Before the acceptance, the offeror is
free to revoke or withdraw his offer, and the offeree is free to reject the offer made by the
offeror and neither party is bound to follow any terms and conditions made by the other party
in the offer.
After the acceptance of the offer, it becomes a promise, and both the parties are bound to it.
Each party becomes legally bound to the promises made by them through the medium
of offer and acceptance.
An offer can only be accepted by the person or persons to whom it is made. An offer made to
a particular person (specific offer) can be accepted only by him and no one else.
The essentials of a valid acceptance
The essential requirements of acceptance of an offer which results in a contract: –

Acceptance should be communicated by the offeree to the offeror.

Acceptance should be absolute and unqualified.

Acceptance should be made in some usual and reasonable manner unless the proposal
prescribes the manner of the acceptance.

Acceptance should be made before the revocation of the offer.
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
Reasonable Time
Explanation: –
1.
Acceptance must be Communicated: – To constitute a valid contract, acceptance
must be communicated and such communication must be made to the offeror. Mere intention
or mental determination to accept the offer does not amount to acceptance.
2.
Acceptance should be Absolute and Unqualified: – As per Section 7 of the Indian
Contract Act 1872, acceptance should be complete. It is of the essence of a contract that
there should be (expressly or by implication) a proposal to which an unqualified assent has
been given: without such assent there is no contract as the minds of the contracting parties
are not at one.
3.
Acceptance Should be Made in Some Usual and Reasonable Manner: –
Acceptance should be expressed in the usual way or according to the prescribed mode.
According to Section 7(2) of the Indian Contract Act, 1872, acceptance must be expressed in
some general and proper manner, unless the offer determines how it is to be accepted. If the
proposal prescribes a manner in which it is to be accepted, and the acceptance is not made
in such manner, the proposer may, within a reasonable time after the acceptance is
communicated to him, insist that his proposal shall be accepted in the prescribed manner,
and not otherwise; but, if he fails to do so, he accepts the acceptance.
4.
Acceptance Should be Made Before the Revocation of the Offer: – Section 5 of the
Indian Contract Act states that the offer can be revoked (cancelled) at any time before the
communication of acceptance but not later. Therefore acceptance must be given before such
revocation.
5.
Reasonable Time: – Effective acceptance must be given within the specified time limit
and if no time limit is mentioned then, acceptance must be given within a reasonable time,
because a proposal cannot be kept open indefinitely.
Communication of acceptance in contract law
Rules related to the communication of acceptance in contract law should be studied from the
point of view of offeror and as well as of offeree because the communication of acceptance
will be done from both the sides; offeror and offeree at different time.
1.
Acceptance can be done in two ways
Communication of acceptance by an act: – This would include communication through
words, whether oral or written. For Example, communication through a telephone call, letter,
e-mail, telegraph etc.
Communication of acceptance by conduct: – Offeree may also give its acceptance through
its action, or by its conduct. For Example, that when you board a bus, you are accepting the
bus fare through your conduct.
2.
Acceptance time: – Communication of acceptance has two parts
Against the proposer: – For the proposer, the communication of acceptance is complete
when he gives such acceptance during transmission. After this the cancellation of such
acceptance is out of his hands, so his communication will then be completed. Therefore, for
example, ‘A’ accepts B’s proposal through a letter. He posts the letter on 10 th July and the
letter arrives to ‘B’ (proposer) on 14th july. Communication of acceptance is completed only
on the 10th of July from the side of an acceptor.
Against the acceptor: – In the case of the acceptor, the communication is complete when the
proposer acquires knowledge of such acceptance. Therefore, in the above example, A’s
communication will be complete on 14th July, when ‘B’ receives acceptance letter.
Revocation of acceptance in contract law
Meaning – Section 5 of the Indian Contract Act, says that, an acceptance in contract
law may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but no afterwards.
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The acceptor can cancel this acceptance before the communication of acceptance reaches
the proposer. That is before the communication of acceptance is complete as against the
acceptor. If the revocation of acceptance reaches the proposer before the acceptance comes
to the knowledge of the proposer, then there can be a valid revocation of acceptance. The
Revocation of Acceptance is complete only at any time before the communication of
acceptance is complete as against the acceptor, but not afterwards.
When the contract is created through the post, according to section 4, by the posting of the
letter of acceptance, the offeror will become bound when the letter of acceptance is posted to
him and the acceptor will become bound when the letter of acceptance comes to the
knowledge of the offeror. Since the acceptor does not become bound immediately on posting
his letter of acceptance, he is free to revoke the acceptance by adopting the speedier mode
of communication, but his communication of revocation of acceptance must reach earlier
than his letter of acceptance.
Section 5 expressly permits the revocation of acceptance: – An acceptance can be
revoked at any time before the communication of the acceptance is complete against the
acceptor, but not afterwards.
Illustration: – ‘A’ proposed a letter to sell his house to ‘B’ and sent it by post, to ‘B’. ‘B’ also
accepts the proposal and made the acceptance through a letter sent by post. Here, ‘B’ can
revoke his acceptance at any time before the acceptance letter comes to the notice of ‘A’, but
not afterwards.
Case Laws of Acceptance in Contract Law
1.
Patna Regional Dev. Authority vs. Rashtriya Pariyojna Norman Nigam
Facts of the Case: – The tender submitted by the first respondent, who has been blacklisted
for five years, was rejected on the ground that he stood blacklisted at the time was justified
and valid.
Judgment of the Case: – It was held that the rejection of the tender was justified and valid.
The tender had not challenged his blacklisting when the tender committee decided about this
tender. Rejection of the tender by the tender committee could not be considered to be
arbitrary or unreasonable.
2.
M/s. Rakesh Dinesh Kumar vs. U.G. Hotels & Resorts Ltd. AIR 2006 HP 135, 2006
(2) ShimLC 384
Facts of the Case: – There was a contract for the supply of goods by plaintiffs to defendant.
The Default was made by the defendant in making payment. The Defendant had made an
offer in writing to pay a certain amount in the full and final settlement of dues. It was shown
by the conduct of the parties that the plaintiff had impliedly accepted the offer and receive
part of the amount.
Judgment of the Case: – The court held that the receipt of the amount by the plaintiff,
amounted to an acceptance of the offer.
3.
Progressive Constructions Ltd. vs. Bharat Hydro Power Corp. Ltd.
Judgment of the Case: – It was held that when the parties enter into a contract by post, the
contract would be deemed to be complete where the offer was received and the acceptance
was posted. The place of delivery of letter is irrelevant and therefore, the cause of action
does not arise where the letter is delivered.
4.
Bhagwandas vs. Girdharilal
Judgment of the Case: – Supreme Court held that, in case of communication by telex, the
normal rule would apply and the contract would be completed only when the acceptance was
received to the offeror.
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9. What are the remedies for breach of contract?
The parties to a contract are expected to legally perform their obligations. Therefore, when
either of the parties does not keep their end of the agreement or does not fulfil their obligation
as per the terms of the contract, it is a breach of contract. There are a few remedies for
breach of contract available to the wronged party.
He may seek to obtain: –
1.
Damages for the loss sustained, or
2.
A decree for specific performance, or
3.
An injunction.
The laws relating to damages are governed by the Contract Act, whereas the laws relating to
injunctions and specific performance are governed by the Specific Relief Act, 1963.
Meaning of Contract: – A contract means an agreement, which is enforceable by law. An
agreement consists of reciprocal (mutual) promises between the two parties. In the case
of contract each party is legally bound by the promise made by them. A contract is legally
enforceable when it meets the requirements of applicable law.
Breach of contract?
Meaning of Breach of Contract: – A breach of contract by a party is a failure to fulfill
obligations under a contract. A breach of contract is a violation of any of the agreed-upon
terms and conditions of a binding contract. It is of two types, namely the anticipated breach
and the present breach. Breach occurs when a party to a contract fails to fulfill its
obligation(s), whether partially or wholly, as described in the contract, or communicates an
intent to fail the obligation or otherwise appears not to be able to perform its obligation under
the contract.
A contract can be said to be broken or breached when either party fails or refuses to perform
its obligations or promises made under the contract. Therefore, it can be said that when a
binding agreement is not honoured by one or more parties by non-performance of his
promise, the agreement can be said to be breached.
Therefore, it is said that when a binding agreement is not honoured by one or more parties
for not fulfilling its promise, the agreement can be said to be breached.
The remedies for breach of contract
There are a few remedies for breach of contract available to the plaintiff or the wronged
party, those are as follows: –
1.
Recession of Contract: – When one of the parties to a contract does not fulfil his
obligations, then the other party can rescind the contract and refuse the performance of his
obligations. Rescission allows a non-breaching party to cancel the contract as a remedy for a
breach. Rather than seeking monetary damages, the nonbreaching party can simply refuse
to complete their end of the bargain. Rescission puts the parties back in the position they
would have been in had they never entered into the contract.
As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or compensation for such
a recession.
2.
Sue for Damages: – Section 73 of Indian Contract Actclearly states that the party who
has suffered, since the other party has broken promises, can claim compensation for loss or
damages caused to them in the normal course of business. Such damages will not be
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payable if the loss is abnormal in nature, i.e. not in the ordinary course of business. There
are three types of damages according to the Indian Contract Act: –
Liquidated Damages: – Sometimes parties might agree to pay a certain amount on
breach of the contract. When such provisions are created in the contract, they are known
as liquidated damages. Liquidated damages are a specific amount the parties agree to in
the contract as compensation for a breach.
Unliquidated Damages: – Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities. Unliquidated damages are damages
that are payable for a breach, the exact amount of which has not been pre-agreed. The sum
to be paid as compensation is said to be ‘at large’ and is determined after the breach occurs,
by a Court.
Nominal Damages: – A court may award nominal damages as a legal remedy for breach
of contract when the plaintiff cannot support their claim for compensatory damages. With
nominal damages, the court recognizes that a breach of contract occurred, but no harm can
be calculated.
3.
Sue for Specific Performance: – Specific performance is a type of remedy for breach
of contract in which a court orders the breaching party to perform their end of the bargain.
Monetary damages are typically favored over specific performance as a remedy for breach of
contract. However, specific performance may be available when monetary damages won’t
adequately compensate you. This means the party in breach will actually have to carry out
his duties according to the contract. In certain cases, the courts may insist that the party
carry out the agreement. So if any of the parties fails to perform the contract, the court may
order them to do so. This is a decree of specific performance and is granted instead of
damages.
4.
Injunction: – An injunction is a court order restraining a person from doing a particular
act. Injunctions serve a similar purpose as specific performance. The difference is that with
specific performance, the court orders a party to do something. With an injunction, the court
often orders a party not to do something. There are two types of Injuctions, as follows: –
Temporary Injunction or Interim Injunctions: – Temporary or Interim Injunctions are
governed by Order 39 of Civil Procedure Code 1908 and are those injunctions that remain in
force until a specified period of time, e.g. 15 days, or till the date of the next hearing. Such
injunctions can be granted at any stage of the suit.
Permanent Injunction or Perpetual Injunctions: – Permanent or Perpetual Injunctions as
under Sections 38 to 42 of the Specific Relief Act, 1963 are contained in the decree passed
by the Court after fully hearing the merits of the case. Such an injunction permanently
prohibits the defendant from committing an act which would be contrary to the plaintiff’s
rights.
5.
Quantum Meruit: – Quantum meruit literally translates to “as much is earned”. Even if
there is no specific contract this law implies a promise to pay a reasonable amount for the
labour and material furnished. At times when one party of the contract is prevented from
finishing his performance of the contract by the other party, he can claim quantum meruit. So
he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of
the work he has already done.
The important rules governing the measure of damages?
Section 73 of the Indian Contract Act 1872 follows four important rules governing the
measurement of damages or remedies for breach of contract, as follows: –
1.
First Rule: – When one party breaks the contract, then the other party who is suffering
from such breach is entitled to receive compensation or remedies for breach of contract for
any loss or damages from the party who did not perfom his or her part of the contract: –
 Which naturally arose in the ordinary course of things from such a breach, or
29

The parties were aware when they made the contract that it was likely to result in a
breach of contract.
2.
Second Rule: – The second law to measure damage relates to the remoteness of the
damage. It states, When a contract has been broken, the 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. Compensation for failure to discharge obligation
resembling those created by contract.
3.
Third Rule: – When an obligation resembling those created by contract has been
incurred and has not been discharged, any person injured by the failure to discharge it is
entitled to receive the same compensation from the party in default, as if such person had
contracted to discharge it and had broken his contract. The third rule for remedies for Breach
of Contract is to be found in the explanation of section 73, which is as follows: –
“In estimating the loss or damage occurred from a breach of a contract, i.e., existed to
remove the inconvenience caused by the non-performance of the contract should be taken
into account.” The remedies for the breach of contract should be provided.
Illustration: – If a railway company, contracted with a passenger to take it to a particular
station, fails to do so, the passenger is entitled to compensation for the inconvenience
caused and to bear any reasonable expenditure, which he spend to stay in the hotel, and
might give some other charges, the railway with that expense if it is appropriate to do so
under that particular circumstance.
4.
Fourth Rule: – It should be noted at the end, that the losses payable for breach of a
quasi-contract are the same as those payable for another contract. For re-writing, all of the
above rules apply to quasi-contracts in the same manner. It should be noted that when there
is no loss from breach of contract, only nominal damages are awarded. Indemnity is granted
only through restitution and compensation, not through punishment. Therefore the aggrieved
party can recover the actual loss from it as compensation.
Cases in which Specific Performance of Contract Enforceable
According to Section 10 and 14(3) of the Specific Relief Act, 1963, there are cases when
the specific performance of a contract may be allowed by the court. They are as follows: –
1.
When there is No Standard to Detect Actual Damage: – It is the situation in which
the plaintiff is unable to determine the amount of loss suffered by him. Where the damage
caused by the breach of contract is ascertainable then the remedy of specific performance is
not available to the plaintiff. For example, a person enters into a contract for the purchase of
a painting of dead painter which is only one in the market and its value is unascertainable
then he is entitled to the same.
2.
When Monetary Compensation will not provide Sufficient Relief: – When the act
agreed to be done is such that compensation offered in money for its non-performance would
not afford adequate relief. Unless and until the contrary is proved, the court shall presume: –
A. The breach of a contract to transfer immovable property cannot be adequately relieved
by compensation in money; and
B. The breach of a contract to transfer movable property can be so relieved except in the
following cases: –
i.
where the property is not an ordinary article of commerce, or is of special value or
interest to the plaintiff, or consists of goods which are not easily obtainable in the market;
ii.
where the property is held by the defendant as the agent or trustee of the plaintiff.
3.
However, until the Contrary is Proved, it is assumed that: –
A. A breach of a contract for transferring immovable property cannot be adequately
compensated by payment of money.
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B. The breach of contract for transferring movable property can be compensated, except in
the following cases: –
i. Where the property is not a general article of commerce or is of special value or interest
to the plaintiff, or includes goods which are not readily obtained in the market;
ii. Where the property is held by the defendant as the agent or trustee of the plaintiff.
C. Generally, courts have the right to hold that, in case of breach of contract for the
transfer of immovable property, compensation is not sufficient while specific performance is
sufficient relief, whereas in case of movable property, compensation is general relief and
specific performance is exceptional. However, it should be noted that these estimates are
rebuttable.
4.
Suit for the Enforcement of a Contract to Execute a Mortgage: – In a suit for the
enforcement of a contract to execute a mortgage or furnish any other security for the
repayment of any loan which the borrower is not willing to pay at once, specific performance
may be allowed. However, where only part of the loan has been advanced by the lender, he
must be willing to advance the full amount of the loan.
A. The contract for the purchase of any debenture of a company.
B. Suit for the execution of a formal deed of partnership.
C. Suit for purchase of partner’s share.
D. Suit for enforcement of building contract or any other work on the land, provided the
following 3 conditions are fulfilled: –
i. The building or other work is described in the contract in terms sufficiently precise to
enable the court to determine the exact nature of the building or work;
ii. plaintiff has a substantial interest in the performance of the contract and the interest is
of such a nature that compensation in money for non-performance of the contract is not an
adequate relief; and
iii. After the contract, the defendant has obtained possession of the whole or any part of
the land in question.
E.
It is important to remember that specific performance is an equitable remedy, and it
depends on the discretion of the court rather than the right of an individual by law
Case laws under Remedies for Breach of Contract
1.
Hadley vs. Baxendale (1854) 9 Ex. 354
In this case, the court held that “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 either such as may reasonably and fairly be considered as arising
naturally, i.e. according to 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.”
2.
Madras Railway Company vs. Govinda (1898) 21 Mad. 172
Facts of the case: – The Plaintiff, who was a tailor, delivered a sewing machine and some
clothes to the defendant railway company, to be sent to a place where he expected to carry
on his business in an upcoming festival. Due to mistakes made by the company’s
employees, the goods were delayed and were not delivered until some days after the festival
was over. The plaintiff had not given any notice to the railway company that the goods were
required to be delivered within a fixed time for any special purpose.
Judgement of the case: – On a suit by the plaintiff to recover a sum of his estimated profits,
the Court held that the damages claimed were too remote.
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10. What is Free Consent under the Indian Contract Act?
Meaning of Free Consent under the Indian Contract Act: – When both the parties agree
to a thing in the same sense of mind, then the agreement is considered to be done
with free consent. One of the essentials of a valid contract mentioned in section 10, is that
the parties should enter into the contract with their free consent. It is not a free consent
when it is said to be given under influence, coercion, fraud, misrepresentation or mistake.
In the Indian Contract Act, the definition of Consent is given in Section 13, which states that
“it is when two or more persons agree upon the same thing and in the same sense”. So the
two people must agree to something in the same sense as well.
For Example: – ‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to sell
his which is located in haridwar. ‘B’ thinks he is buying A’s Delhi house. Here ‘A’ and ‘B’ have
not agreed upon the same thing in the same sense. Therefore, there is no consent and no
contract afterwards.
Free Consent is mandatory to make an agreement a valid contract. The importance of free
consent cannot be stressed enough. Such consent must be free and voluntary in nature,
without any sort of pressure. If the consent to the agreement was obtained or induced by
coercion, undue influence, fraud, misrepresentation or mistake, then it has the potential to
make the agreement void.
According to Section 14 of Indian Contract Act, it is said to be free consent when it is not
caused by: –

Coercion as defined in Section 15; or

Undue Influence as defined in Section 16;

Fraud as defined in Section 17;

Misrepresentation, as defined in Section 18;

Mistake, under Sections 20, 21 and 22.
If consent of one party is not free then it is not a valid contract. When the consent to an
agreement is caused by coercion, undue influence, fraud or misrepresentation, the
agreement is voidable at the option of the party whose consent is not free. Even if the
consent taken is caused by the mistake, the agreement is void.
The factors affecting free consent under the Contract Act
The factors affecting Free Consent Under the Indian Contract Act, 1872 are as follows: –
1.
Coercion: – Coercion means forcing a person to enter into a contract. Therefore, force
or threats are used to obtain the consent of the party, it is not free consent. Section 15 of the
Indian Contract Act, 1872 states that coercion is committing or threatening to commit,
any act is forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining or
threatening to detain any property, to the prejudice of any person whatever, with the intention
of causing any person to enter into an agreement.
For example: – ‘A’ has threatened to hurt ‘B’ if he does not sell his house to ‘A’ for Rs. 5 lakh.
Here too, if ‘B’ sells the house to ‘A’, it will not be a valid contract as B’s consent was
obtained by coercion.
Now the effect of coercion is that it makes the contract voidable. This means the contract is
voidable at the option of the party whose consent was not free. So the aggravated party will
decide whether to perform the contract or to avoid the contract. So in the above example, if B
still wishes, the contract can go ahead.
2.
Undue Influence: – When the relationship between the two parties is such that one
party is in a position to dominate the other party, and uses such influence to gain an unfair
advantage from the other party then it will be undue influence. Section 16 of the Indian
Contract Act, 1872 contains the definition of undue influence. For example: – ‘A’ sold his gold
32
watch for only Rs. 500/- to his teacher ‘B’, where ‘B’ promised to give good grades to ‘A’.
Here A’s consent is not freely given, he was under the influence of his teacher.
The section also describes how a person can abuse his authority in the following two ways: –
 When one person holds real or clear authority over another person or if he is in a
fiduciary (trustee) relationship with another person.
 He makes a contract with a person whose mental capacity is affected by age, illness or
crisis. Unsoundness of mind can be temporary or permanent.
Examples of fiduciary relationship are: –
 Solicitor and client;
 Trustee and trust;
 Spiritual adviser and devotee;
 Medical attendant and patient;
 Parent and child;
 Husband and wife;
 Master and servant;
 Guardian and ward.
3.
Fraud: – Fraud means cheat by one party, that is, when one of the parties
intentionally makes a false statement, it is said to be fraudulent. According to Section 17 of
the Indian Contract Act, the other party has been given rights to claim for the deceived
amounts as well as to revoke the entire contract and can make modifications where he got
damaged. ‘Fraud’ means and includes any of the following acts committed by a party to a
contract: –
 The suggestion, as a fact, of that which is not true, by one who does not believe it to
be true;
 The active concealment of a fact by one having knowledge or belief of the fact;
 A promise made without any intention of performing it;
 Any other act fitted to deceive;
 Any such act or omission as the law specially declares to be fraudulent.
1.
For example: – ‘A’ purchased a horse from ‘B’ and he has claimed that the horse can
be used on the farm. It turns out that the horse is lame and ‘A’ cannot use it in his field. Here
‘B’ deliberately betrayed ‘A’ and this would be fraudulent. It is not a free consent.
2.
One factor to consider is that the aggravated party should suffer from some
actual loss due to the fraud. There is no fraud without damages. Also, the false statement
must be a fact, not an opinion. In the above example if B had said his horse is better than C’s
this would be an opinion, not a fact. And it would not amount to fraud.
4.
Misrepresentation: – Misrepresentation occurs when a party makes a representation
that is wrong, inaccurate, incorrect, etc. The difference here is the misrepresentation could
be innocent, i.e., not intentional. According to Section 18 of the Indian Contract Act,
the misrepresentation is nothing but showing the false information at the beginning of the
contract itself. The party making the statement believes that the statement as true.
Misrepresentation can be of three types: –
 A person makes a positive claim believing it to be true.
 The person violating any duty gives one advantage by misleading the other but breach
of duty is without the intention of deceiving anyone.
 When one party causes the other party to make a mistake as the subject of the contract
but this is done innocently and not intentionally.
5.
Mistake (Section 20): – When the consent of parties to the contract is caused by
mistake, it is not free consent which is needed for the validity of the contract. One or both the
parties may be working under some misunderstanding or misappropriation of some fact
relating to the agreement. For example: – ‘A’ agrees to buy a certain horse from ‘B’. It turns
out that the horse was dead at the time of the bargain, though neither party was aware of the
fact. The agreement is void.
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There are two forms of mistake under Indian contract law: –
 Mistake of fact,
 Mistake of law.
If such a misunderstanding or misapprehension had not been there, probably they would not
have entered into the agreement. Such Contracts are said to have been caused by mistake.
The importance of free consent in contract?
The Importance of free consent in contract are given below: –
1. The contract made out of free consent protects the validity and enforceability of an
agreement.
2. It provides a protecting shield to the parties from coercion, undue influence,
misrepresentation, fraud, and mistake
3. It provides the parties to withstand their autonomous power to frame their running policy
or principle.
4. The principle of consensus-ad-idem is followed.
Difference between Consent and Free Consent?
S.NO.
BASIS
CONSENT
FREE CONSENT
1.
Meaning
When both the parties
agree to a thing in the
same sense of mind or
unison of mind, then the
agreement is considered
to be done with consent.
When an agreement is done with
consent and is free from coercion,
fraud,
misrepresentation,
undue
influence, and mistake. Then the
agreement is considered to be done
with free consent.
2.
Essentials
Both parties must be
entering
into
the
agreement in the same
sense
of
mind.Both
parties must be entering
into
the
agreement
should be agreeing to
the same thing.
Consent should be free from Coercion,
fraud, misrepresentation, undue
influence and mistake
3.
Voidability
When there is a lack of
consent, the contract
would be void.
When there is no free consent, then the
voidability of the contract depends on
the option of the aggrieved party.
Case laws
1.
Raffles vs. Wichelhaus
Facts of the case: – Two parties, ‘A’ and ‘B’, entered into a contract for the sale of 125
cotton bales by a ship called “Peerless” from Bombay. There were two ships of the same
name, and while Party ‘A’ was thinking of one ship, Party ‘B’ was thinking of another ship.
Judgment of the case: – The court held that there was no meeting of mind by both parties.
Therefore the contract was invalid.
2.
Ranganayakamma vs. Alwar Sett
In the case of Ranganayakamma vs. Alwar Sett, where the widow was prohibited from
removing the corpse of her husband until she consented for the adoption. The court said that
her consent was not free and it was coerced. It is clear that coercion is committing or
threatening to commit any act which is contrary to law.
3.
Lingo Bhimrao Naik vs. Dattatrya Shripad Jamadagni AIR 1938 Bom 97
34
A mother was alleged to use undue influence on his adopted son when he reached the age
of majority to ratify the gift deeds regarding non-watan property made to her daughters and
caused obstruction in letting him consult his natural father. The court held that the adoptive
mother used her position of authority to dominate his son gain an unfair advantage in getting
the gift deeds ratified. Also, as the adoptive son was unaware of his legal rights, the matter
was set aside
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11. Invalid Contract:
Invalid Contract: – The Invalid contract is an agreement which is not enforceable by law
when it lacks essentials of a valid contract. The parties are not obliged to do their part. Valid
contracts have all the required elements and are legally enforceable in court. A valid contract
creates legal obligations between contractual parties. It gives a party cause to compel
another party to do or not do something.
Contracts may become invalid under the following circumstances: –
1.
If the contract is against public policy;
2.
If the contract is illegal;
3.
If the offer/acceptance/consideration calls for action that violates the law such as
gambling, robbery, etc.
4.
If the purpose of the contract is illegal.
Following are the types of Invalid Contracts: –
1.
Coercion
2.
Undue Influence
3.
Fraud
4.
Misrepresentation
5.
Mistake
1 Coercion (Section 15)
Coercion is a non-binding/invalid contract. Coercion means forcing a person to enter into a
contract. Therefore, force or threats are used to obtain the consent of the party, i.e., it is not
free consent. Coercion is described under Section 15 of the Act.

Committing or threatening to commit any act prohibited by law in IPC.

Unlawfully detaining or threatening to detain any property intended to enter into a
contract.
For example: – A has threatened to hurt B if he does not sell his house to A for Rs. 5 lakh.
Here too, if B sells the house to A, it will not be a valid contract as B’s consent was obtained
by coercion.
The effect of coercion
Now the effect of coercion is that it makes the contract void. This means that the contract is
void at the option of the party whose consent was not free.
It is on the discretion of the party whose consent is obtained with coercion that whether to
perform the contract or to avoid it. So in the above example, if B still wishes to perform his
part of the contract, it will be considered as a valid contract.
The burden of proof
Also, if any money has been paid or the goods delivered under the contract must be returned
or repaid after the contract is void. And the burden of proof will be on the party who wants to
avoid the contract. Therefore, the agitated party must prove coercion, i.e., that he will prove
that his consent was not free.
2. Undue Influence (Section 16)
Section 16 of the Act defines undue influence. It states that when the relationship between
the two parties is such that one party is in a position to dominate the other party, and uses
such influence to gain an unfair advantage from the other party then it will be undue
influence. Undue Influence is an Invalid contract.
36
The section also describes how a person can abuse his authority in the following two
ways: –

When one person holds real or clear authority over another person. Or if he is in a
fiduciary (trustee) relationship with another person

He makes a contract with a person whose mental capacity is affected by age, illness or
crisis. Unsoundness of mind can be temporary or permanent.
Examples of fiduciary relationship are: –

Solicitor and client;

Trustee and trust ;

Spiritual adviser and devotee;

Medical attendant and patient;

Parent and child;

Husband and wife;

Master and servant;

Guardian and ward.
For example: – A sold his gold watch for only Rs 500 / – to his teacher B after promising to
give good grades to his teacher. Here A (adult) consent is not freely given, he was under the
influence of his teacher.
The effect of undue influence
Now to make the dominant party clear, undue influence should be the purpose of taking
advantage of the other party. If the effect is to benefit the other party, it will not be an undue
influence.
But if the consent is not free due to undue influence, the contract becomes void at the option
of the aggrieved party. Here, the burden of proof will be on the dominant party and he has to
prove the absence of influence.
The burden of proof
If the plaintiff wants to take any action to stop the contract entered into based on undue
influence, two issues must be taken into consideration. The law stated in the Indian
Evidence Act, 1872 and the Indian Contract Act, 1872.
The law states that the plaintiff has to establish things to prove that he was under the undue
influence:

Not only does the defendant have a prominent position, but,

He must also use it to get an advantage from the other party.
3. Fraud (Section 17)
Fraud means cheat by one party, that is, when one of the parties intentionally makes a false
statement. Fraud is an Invalid contract. Hence misrepresentation is done with full information
that it is not true, or that it is said to be fraudulent, without being casually investigated for
trueness. It provides free consent.
One factor to consider is that the party incurred due to the fraud must bear some real loss.
There is no fraud without loss. Also, the incorrect statement must be a fact, not an opinion.
In the above example, if B had said that his horse is better than C, then it would be an
opinion, not a fact. And it will not amount to fraud.
Therefore, according to Section 17, fraud occurs when one party convinces the other to
enter into an agreement by making statements that are

Suggesting a fact that is not true and does not consider it to be true;

The active concealment of facts;

Purposeless promise.
37
For example: A purchased a horse from B and it is claimed that the horse can be used on the
farm. It turns out that the horse is lame and A cannot use it in his field. Here B deliberately
betrayed A and this would be fraudulent.
The Effect of Fraud

A contract arising out of fraud is a voidable contract.

The misled party has the right to withdraw from the contract.

Due to the fraudulent agreement, the party is responsible for the recovery of damages.
The burden of Proof
The burden to prove the validity of the deed of settlement was on the Defendant. The person
whose consent is obtained with fraud, in such cases the burden of proof will lie on the person
whose consent is so obtained. He has to prove that fraud had done to him and his consent to
the contract is obtained from fraud.
4. Misrepresentation (Section 18)
Misrepresentation also occurs when a party makes a representation that is wrong,
inaccurate, incorrect, etc. The difference here is the misrepresentation is innocent, i.e., not
intentional. The party making the statement believes that the statement as true.
Misrepresentation is an Invalid contract.
Misrepresentation can be of three types:
A person makes a positive claim believing it to be true
The person violating any duty gives one advantage by misleading the other. But the
breach of duty is without the intention of deceiving anyone

When one party causes the other party to make a mistake as the subject of the
contract. But this is done innocently and not intentionally.
The Effect of Misrepresentation
If a party who enters into a contract can result in a misrepresentation, choosing to terminate
the contract, cancel the contract within a reasonable time under the Specific Relief Act 1963.


Kinds of Misrepresentation:
1. Negligent Misrepresentation

It is considered to be a negligent misrepresentation if the misrepresentation happens
due to lack of reasonable ground or carelessness;

Careless misrepresentation is known only when the representative owed a duty to
handle the representee carefully;

A person shall be liable only when, in particular, he has neglected the specified duty;

Even when no fiduciary relationship exists, the responsibility exists between the two
parties.
2. Innocent Misrepresentation

If the representation is based on a good reason to believe and there is no error and
malicious motive, then it is called an innocent misrepresentation.

When a person enters into a contract with an innocent misrepresentation, he has the
right to withdraw from the contract but is not entitled to compensation.

A contract will not be void unless there are reasonable grounds. This fact will be
sufficient to prove innocence in the misrepresentation.
The burden of proof
The burden of proof is on the defendant to show that the misrepresentation was not
fraudulently made by showing that “he had reasonable grounds to believe that the evidence
depicted was valid during the time the contract was made.” The party who is making
misrepresentation party bears the heavy burden of proof.
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5. Mistake (Section 20)
Mistake is an Invalid Contract defined under section 20 of the act. There are two forms of
fault under the Indian contract law:

The mistake of fact,

The mistake of law.
Explanation:
1. The mistake of fact:

A mistake of fact occurs when one or both contracting parties have misunderstood a
term which is essential to the meaning of the contract;

Such a mistake can be caused by confusion, carelessness or omission, etc.;

A mistake is never intentional, it is an acquittal. Mistakes can be unilateral or bilateral:
o
Bilateral Mistakes (Section 21): When both parties to the contract are subject to
a mistake of fact, such a mistake is known as a bilateral mistake, necessary for the
agreement. Bilateral mistakes are sometimes referred to as mutual or common mistakes. Not
all parties agree on the same thing and the same way, which is the concept of consent. Since
there is no agreement, the contract is null and void.
Unilateral Mistakes (Section 22): Unilateral Mistakes occurs when only one party mistakes for
the contract. In such a case the contract will not be void. It is specified in section 22 of the
Act that the contract will not be void merely because one party made a mistake. Therefore, if
only one party has made a mistake, the contract remains a valid contract.
2. The mistake of law:
The mistake may be related to the mistake of Indian laws, or it may be the fault of foreign
laws. If the mistake applies to Indian laws, then the theory is that ignorance of the law is not a
good enough excuse. This means that either party cannot claim that they are not aware of
the law.
The Contract Act states that no party can claim any relief based on neglect of Indian law.
This would also include misinterpretation of any legal provisions.
However, similar treatment is not given, ignoring foreign law. Ignorance of foreign law
provides some freedom, the parties are not expected to know the foreign law and its
meaning. Therefore, under the Indian Contract Act, an error of foreign law is considered as
an error of fact.
Case laws
1. Keates vs. Lord Cadogan

Facts of the case: A let his house to B which he knew was in a ruinous condition. He
also knows that the house is going to be occupied by B immediately. A did not disclose the
condition of the house.

The judgement of the case: In this case, the Court held that he had committed no fraud.
2. Shri Kishan vs. Kurukshetra University

Facts of the case: Shri Kishan, a candidate for the L.L.B. Part I exam, who was short of
attendance, did not mention the fact that himself in the admission form of the examination.
Neither the Head of the Law Department nor the University Authorities made proper scrutiny
to discover the truth.

The judgement of the case: In this case, the Supreme Court held that there was no
fraud by the candidate and the University had no power to withdraw the candidature of the
candidate on that account.
3. Cooper vs. Phibbs

Facts of the case: A agreed to take a lease of a fishery from B. Unknown to both the
parties, A was already tenant for life of the fishery rights and B had no title to the same.

The judgement of the case: In this case, the agreement was set aside on the grounds of
the common mistake.
39
4. Tulsiram Maroti Kohad vs. Roopchand Laxman Ninawe

Facts of the case: There was a contract by the plaintiff to give his daughter in marriage.
The daughter was minor at the time of engagement ceremony, would have attained the age
of majority on the date of marriage.

The judgement of the case: In this case, the court held that the agreement would not
oppose the public policy. The contract was not void-ab-initio. Plaintiff was entitled to the
damages on breach of the contract by the other party as it was not an Invalid Contract.
40
12. Contingent contract and wagering agreements :
According to Section 2(h) of the Indian Contract Act 1872, we know that an agreement
enforceable by law is a contract. As used herein, “contract” means any agreement created by
the voluntary agreement of parties competent to contract for a lawful consideration and with a
lawful aim, which is not void. Parties enter into a contract to bind themselves to certain
obligations in exchange for a certain consideration.
A contingent contract depends on the happening or non-happening of some uncertain future
event and a Wagering agreement is an agreement to pay a sum of money based on an
uncertain event. In this article, we will discuss the difference between a contingent contract
and a wagering agreement. One is a contract and another is an agreement, so we can
understand that some agreements form contracts and some are not. The agreements which
do not form a contract are not enforceable.
Contingent contract
According to Section 31 of the Indian Contract Act 1872, 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. In simple words, contingent contracts are those where the performance of the
contract depends on the happening or non-happening of some uncertain future event.
Contracts of insurance, indemnity, and guarantee fall under the category of contingent
contract.
Example: A contract between Rita and Gita stipulates that if Gita’s house is burned, Rita will
pay 59,000 rupees. This is a contingent contract.
Essential elements of contingent contract
1. The performance of a contingent contract depends on the occurrence or nonoccurrence of an event or condition.
2. This event is collateral to the contract. This event is not a part of the contract. A promise
of performance or consideration for a promise should not be attached to the event.
3. The event must be uncertain. If the event is certain, then it is not a contingent contract.
4. The contingent should not be a mere will of the promisor.
Enforcement of contingent contract
Section 32-36 of the Indian Contract Act 1872 states some rules for the enforcement of
contingent contracts. These are as follows:
Section 32
In Section 32, until and unless an uncertain future event occurs, contingent contracts may not
be enforceable by law. If the event becomes impossible, the contract becomes void. For
example, Ram contracts to pay Shyam a sum of money when Shyam marries Gita. Gita dies
without being married to Shyam. The contract becomes void.
In this scenario, the uncertain future event (marriage) does not occur. Gita dies before
marriage, and Shyam could not marry Gita. Therefore, it is no longer a valid agreement, and
Ram is not bound to pay Shyam.
Section 33
In Section 33, the enforcement of contingent contracts for future events can be enforced only
once the happening of those events becomes impossible, and not before. For example,
Aryan agrees to pay Rahul a sum of money if a certain ship does not return. The ship is
sunk. The contract can be enforced when the ship sinks.
Section 34
In Section 34, when the contract depends on the performance of a future act that will take
place at some future point, that act becomes impossible when the performer does something
that makes it impossible for him to perform the act within a set time period or under any other
circumstance. For example, Ram agrees to pay Shyam Rs. 15,00,000 if Shyam marries Gita.
41
Gita marries Rahul. The marriage of Shyam to Gita is now impossible, although it is possible
that Rahul may die and that Gita may later marry Shyam.
Section 35
In Section 35, contingent contracts, either to do or not to do anything if an uncertain event
does not occur within a fixed period of time, may be enforced by law when the specified
period has expired and the uncertain event has not occurred or when it becomes certain that
it will not occur before the time fixed has expired. For example, Kabir promises to pay Rahul
a sum of money if a certain ship does not return within a year. The contract may be enforced
if the ship does not return within the year, or is burnt within the year.
Section 36
In Section 36, if an impossible event occurs, contingent contracts to do or not to do anything
are void, regardless of whether the parties knew about the impossibility at the time they
signed the agreement. For example, Raju agrees to pay Tinku 1,000 rupees if Tinku will
marry Raju’s daughter Sneha. Sneha was dead at the time of the agreement. The agreement
is void.
Case law
In Nemi Chand And Ors. vs Harak Chand And Ors (1964) case, the judges considered that a
claim that a contract is a contingent contract must be alleged, and supported by the party
who sets it up. It is useless to argue that the trial court has a bounden duty to consider a
case like this suo moto. Although Section 32 of the Contract Act indeed states that contingent
contracts to do or not do something if an uncertain future event occurs, they cannot be
enforced by law until and unless that event has occurred. It cannot be used to support the
claim that the trial court must dismiss the lawsuit if it relates to a contingent contract, but the
contingency is not pleaded.
Wagering agreements
Section 30 of the Indian Contract Act 1872 defines the Wagering Agreement. As per this
Section, “Agreements by way of wager are void; and no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person to abide by the result of
any game or other uncertain event on which any wager is made.”
Example: In an IPL match, if team A wins then Ram will give Rs. 50,000 to Rahul, and if team
B wins the match then Rahul will give Rs. 50,000 to Ram. This is a wagering agreement
because the agreement is to pay a sum of money based on an uncertain event
A wager is a chance in which each party stands to win or lose based on the outcome of an
uncertain event in reference to which it is taken and in the occurrence of which neither party
has a legitimate interest. Money is the only thing that matters to them. Since neither party
can file a lawsuit in a wager, the agreement is void. The money is all that matters in this
situation, not the event. The agreement does not mention a wagering agreement, but it
seems to be a game of chance based on what we see, so we mark it as one.
Essential elements of a wagering agreement
1. There must be two parties.
2. A wagering agreement must include a commitment to pay an amount of money or an
equivalent amount.
3. The event which is involved in the agreement must be uncertain.
4. It is essential to have a common intention.
5. The parties should not have any control over the occurrence of the event.
6. Parties should have no interest in the event except for stake.
7. There must be a chance for both parties to win or lose. When either party can win but
not lose or can lose but not win, this type of agreement is not a wagering agreement.
Exceptions to the rule of a wagering agreement
42
Commercial transaction
Whenever there is a genuine intention to conduct legitimate business, such as to take
delivery of goods or shares, the transaction cannot be considered a wager. The transaction
would be considered a wagering agreement if there are no genuine intentions and parties are
only interested in betting on the rise or fall of the market.
Price competition
There are certain competitions where skill is important in order to succeed. For example,
crossword competitions, picture puzzles, athletic competitions, etc. Price competitions are
games of skill and do not involve wagers because the price is awarded for the merits of the
solution.
Contract of insurance
The contract of insurance is the agreement between the insured and the insurance company
under which, in exchange for the premiums paid by the policyholders the insurance company
undertakes to indemnify the insured against any loss arising from a contingency up to the
agreed sum. The performance of an insurance policy, whether it’s for life, fire, or marine, is
contingent upon an uncertain event.
Horse racing
A contribution or subscription or an agreement to contribute, for any plate, prize, or sum of
money of 500 rupees or greater to the winner or winners of any horse race, is not void by
virtue of Section.
The provisions in this section are not intended to legalize horse-racing transactions that fall
under Section 294A of the Indian Penal Code (45 of 1860).
Case laws
In Babasaheb Rahimsaheb vs Rajaram Raghunath Alpe (1930) case, two wrestlers entered
into an agreement that they will wrestle in Poona on a certain day. The party who fails to
appear in the wrestling match will pay Rs. 500 to the other party and the winning wrestler
would get Rs 1,125 from the gate money. One of them failed to appear in the wrestling match
and the plaintiff sued him for Rs. 500. The defendant contended that the agreement is void
because it was a wagering agreement. The court observed that it was not a wagering
agreement as there was no mutual chance of gain or loss. In this scenario, both parties could
win but neither could lose because the money had to be paid from gate fees given by the
public and not from the pocket of either party.
In Gherulal Parakh vs Mahadeodas Maiya And Others (1959) case, The appellant, Gherulal
Parakh, and the first respondent, Mahadeodas Maiya, managers of two joint families, entered
into a partnership to carry on wagering contracts with two firms. The partners have agreed
that the profits and losses from the transactions will be distributed equally. The net result of
all these transactions was a loss. As the appellant denied his responsibility to bear his share
of the loss, the first respondent filed a suit for the recovery of half of the loss incurred in the
transactions.
The Subordinate Judge found that the parties intended to enter into wagering contracts
based on the rise and fall of the market. As the object of the agreement was prohibited by
law and opposed to public policy, it was void. In an appeal, the High Court ruled that the
partners aimed to deal in differences and that the transactions, as wagers, were void under
Section 30 of the Indian Contract Act, the object was not unlawful within the meaning of s. 23
of the said Act. Void agreements are not the same as illegal agreements. An agreement is
merely void if the law prohibits its enforcement. As such, it can be said that all illegal
contracts are void, but not all void contracts are illegal or unlawful.
Difference between contingent contract and wagering agreement
The distinction between a contingent contract and a wagering agreement is as follows –
1. A contingent contract is defined under Section 31 of the Indian Contract Act 1872. A
wagering agreement is defined under Section 30 of this Act.
43
2. Section 31 of the Indian Contract Act defines “contingent contract” as a contract to do or
not to do something, if some event, collateral to such contract, does or does not
happen. Section 30 of the Indian Contract Act deals with the wager but it doesn’t define
the term. However, a wager means a promise to pay money upon the determination
and ascertainment of an uncertain event.
3. A contingent contract may not be contingent in nature. A wagering agreement is
basically contingent in nature.
4. Contingent contracts are valid and enforceable in nature. Wagering agreements are
void and unenforceable in nature.
5. Parties to a contingent contract may or may not bind themselves by reciprocal
promises. Wagering agreements bind both parties to reciprocal promises.
6. The purpose of a contingent contract is to do or not to do something in response to
certain events. The purpose of a wagering agreement is to win or lose the betting
amount.
7. A contingent contract is a contract to indemnify the loss. The wagering agreement
involves paying money or money’s worth on the outcome of an uncertain event.
8. Contingent contracts are beneficial to society. It has been believed that wagering
agreements are detrimental to the public good.
9. It is only the future event that determines the outcome of a wagering agreement. In a
contingent contract, the future event is only collateral.
Conclusion
After analyzing both the concepts we can conclude that wagering agreements are void and
contingent contracts are valid. So, we can say that we should avoid wagering agreements.