Chapter 1: Indian Contract Act, 1872: What Is Law? (Set of Rules & Regulations)

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CHAPTER 1: INDIAN CONTRACT ACT, 1872

WHAT IS LAW? [Set of Rules & Regulations]
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INTRODUCTION TO MERCANTILE LAW

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SOURCES OF MERCANTILE LAW [Students are required to remember headings only]

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Ex: Indian Contract Act, 1872, Sale Of Goods Act, 1930, Indian Partnership Act, 1932,
Negotiable Instruments Act 1881, Companies Act, 2013.
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COMMENCEMENT & APPLICABILITY OF INDIAN CONTRACT ACT, 1872

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CONTRACT IN DAY TO DAY USE [Not for Exams]

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What is Contract?
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Ex: A agrees with B to sell car for Rs. 2 lacs to B. Here A is under an obligation to give car to B & B has right to receive
car on payment of Rs. 2 lacs & also B is under an obligation to pay Rs.2 lacs to A & A has a right to receive Rs. 2 lacs.
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Ex: Social agreements are not contracts because they are not enforceable in court.
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Ex: An obligation to maintain wife & children. It is moral obligation & thus they are out of scope of Contract Act.
Difference between Agreement & Contract:

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ESSENTIAL ELEMENTS OF A VALID CONTRACT [Section 10]
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Ex: Mr. A promises to pay Rs. 1 lac to Mr. B if he kills Mr. C. Agreement is unlawful since the object is unlawful.

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Ex: An oral agreement for sale of immovable property is unenforceable because the law requires that such
agreement must be in writing & registered.
TYPES OF CONTRACT
A. ON THE BASIS OF VALIDITY (ENFORCEABILITY)
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Ex: SRK proposes/offers to marry Kajol. Kajol accepts offer. This is a valid contract.
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Ex: SRK proposes/offers to marry Kajol. Kajol accepts the offer. This is a valid contract. Later on Kajol dies. Contract
becomes void on death of Kajol.
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Ex: A threatens to shoot B if B did not sell his property to A at Rs. 10,000. This is case of coercion & thus contract is
voidable at option of B. However, contract shall remain valid until B repudiates contract. It may be noted that
contract is not voidable at option of A. A cannot file a suit against B.

Ex: An arbitration agreement is required in writing. If it is not in writing (oral), then contract of arbitration becomes
unenforceable. If such oral agreement is written on paper, then it will become enforceable.
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Ex: A promises to pay Rs. 1 lac to B if he kills C. B kills C & claims Rs. 1 lac. B cannot recover Rs. 1 lac from A because
agreement between A & B is unlawful as the object is unlawful.
Now, if ‘A’ borrows Rs. 1 lac from ‘X’ (who is aware of the purpose of loan) to pay B, agreement b/w A & X which is
collateral to main agreement is also void. Hence X cannot recover the money from A.
B. ON THE BASIS OF FORMATION
Ex: A tells B on telephone that he offers to sell his house for Rs. 2 lacs & B in reply informs A that he accepts offer,
this is an express contract.
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Ex: A delivers by mistake goods at B’s warehouse instead of C’s place. Here there is an obligation on the part of B
to return the goods to A, though they never intended to enter into a contract.
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Ex: Obtaining cash through ATM, Sale by fall of hammer in auction sale.

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Ex: Obligation of finder of lost goods to return them to true owner or liability of person to whom money is paid
under mistake to repay it back cannot be said to arise out of a contract even in its remotest sense, as there is neither
offer & acceptance nor consent. These are said to be quasi-contracts.
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Ex: Buying a mobile on flipkart.
C. ON THE BASIS OF PERFORMANCE
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Ex: When a grocer sells a sugar on cash payment it is an executed contract because both parties have done what
they were to do under contract.
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Ex: Pre-booking of Samsung Note 10. I promised to pay them Rs. 60,000 on 27th August & they promised to give
me the phone on 27th August.

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Ex: G books a ticket with Indian Airlines from Delhi to Chennai on 16th June, date of travel being 16th July. Indian
Airlines has to perform its part of contract on 16th July.
Ex: M advertises payment of award of Rs. 5,000 to anyone who finds his missing boy & brings him. As soon as B
traces the boy, there comes into existence an executed contract because B has performed his share of obligation &
it remains for M to pay the amount of reward to B. This type of Executory contract is also called unilateral contract.
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Ex: X agrees to sell his bike to Y & X promise to deliver on date of payment. Y promises to pay amt 1 month later.
SOME IMPORTANT DISTINCTION

1. AGREEMENT & CONTRACT
2. VOID CONTRACT & VOIDABLE CONTRACT
3. VOID AGREEMENT & ILLEGAL AGREEMENT

OFFER [SECTION 2(a)]

Definition:
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Points to be noted:
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Ex: If ‘A’ tells ‘B’ that he wants to get marry by diwali. In this case, it does not constitute an offer of marriage by ‘A’ to ‘B’
since there was NO intention of A to get the consent of B.
If in above example, ‘A’ further adds, ‘Will you marry me’, it will constitute an offer.
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TYPES OF OFFER
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Ex: An advertisement given in newspaper announcing a reward for tracing out a missing person. It can be accepted by
any person who trace out missing person & is entitled to claim reward.
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Ex: If A makes a proposal to B to sell his car for ` 2 lacs & B, without knowing the proposal of A, makes an offer to
purchase the same car at ` 2 lacs from A, it is not an acceptance, as B was not aware of proposal made by A. It is only
cross proposal (cross offer). & when two persons make offer to each other, it cannot be treated as mutual acceptance.
There is no binding contract in such a case.
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Ex: ‘A’ offers to sell his plot to ‘B’ for Rs. 10 lakhs. ’B’ agrees to buy it for 8 lakhs. It amounts to counter offer. It may
result in termination of offer of ’A’. & if later on ‘B’ agrees to buy plot for Rs. 10 lakhs, ’A’ may refuse.
ESSENTIAL ELEMENTS OF OFFER
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Ex: A offers to sell one of horse to B from his stable. In this case, no valid offer arises since it is uncertain as to which
horse he wants to sell.
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Ex: If in above example, A has only one horse in a stable, it shall constitute a valid offer since there is only one horse.
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Ex: A nephew of X ran away from home. He sent his servant, Y in search of nephew. After that X announced a reward
to anybody giving information relating to nephew. Y, before seeing announcement, traced nephew & informed X.
Later on reading announcement Y claimed for reward. His suit was dismissed on the ground that he could not accept
offer, unless he had knowledge of it. [Lalman Shukla v. GauriDutt]

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Ex: A proposes B to purchase his android mobile for Rs. 500 & if no reply by him in a week, it shall be assumed that
B had accepted the proposal. This is not a contract.
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Ex: Prospectus of company, An advertisement for sale of goods by auction.
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LAPSE OF OFFER [Sec 4] OR MODES OF REVOCATION OF OFFER

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Ex: Offeror may impose certain conditions such as executing a certain document
or depositing certain amount as earnest money. Failure to satisfy any condition
will result in lapse of proposal.
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ACCEPTANCE [Section 2(b)]

Definition:
Points to be Noted:
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RULES AS TO VALID ACCEPTANCE

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Ex: A offered to sell his car to B for Rs 4 lacs. B accepted offer by saying that he will purchase car for Rs 3 Lacs. In this
case, there is no valid acceptance. B is said to have made a counter offer to A.
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Ex: S sent his servant L, to trace his missing nephew. Later, S offered a reward for anyone who found out his missing
nephew. L, ignorant of announcement, traced the boy. Subsequently, he claimed reward, when he came to know of it.
L is not entitled to reward since - Acceptance cannot precede Offer.
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Ex: If offeror prescribes that acceptance shall be made through text message & offeree sends his acceptance by
whatsApp, there is no acceptance if offeror informs acceptor that acceptance is not in prescribed mode. But if offeror
fails to do so, it will be assumed that he has accepted acceptance.
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Ex: F (Uncle) offered to buy his nephew’s horse for £30 saying “If I hear no more about it I shall consider horse mine
at £30.” The nephew did not reply to F at all. He told his auctioneer, B to keep particular horse out of sale of his farm
stock as he intended to reserve it for his uncle. By mistake the auctioneer sold horse. F sued him for conversion of his
property. Held, F could not succeed as his nephew had not communicated the acceptance to him. [Felthouse vs.
Bindley (1862)]
Ex: ‘A’ subscribed for weekly magazine for 1 year. Even after expiry of his subscription, magazine company continued
to send him magazine for 5 years. & also ‘A’ continued to use magazine but denied to pay the bills sent to him. ’A’ would
be liable to pay as his continued use of magazine was his acceptance of offer.

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Ex: When a trader receives an order from customer & he delivers goods to customer, he is said to have made
acceptance by conduct.
COMPLETION OF COMMUNICATION OF OFFER & ACCEPTANCE
Ex: A makes proposal to B to sell his house for Rs. 2 lakhs. The letter is posted on 10th March. This
letter reaches B on 12th March. Offer is said to have been communicated on 12 th March, when B
receives the letter.
Now, if B receives letter on 12th March, but he reads it on 15th March. In this case offer is
communicated on 15th March, & not 12th March.
Ex: In above example, if ‘B’ accepts ‘A’s proposal & sends his acceptance by post on 14 th March. Communication of
acceptance as against ‘A’ is complete on 14th, when letter is posted. As against ‘B’ acceptance will be complete, when
letter reaches ‘A’.
Here ‘A’ (offeror) will be bound by B’s acceptance, even if letter of acceptance is delayed in post or lost in transit.
The golden rule is offeror becomes bound by contract, moment acceptor has posted letter of acceptance.
But it is necessary that letter is correctly addressed, adequately stamped & duly posted. In such an event loss of letter in
transit, wrong delivery, non-delivery etc., will not affect validity of contract.
However, from view point of acceptor, he will be bound by his acceptance only when letter of acceptance has reached
proposer
So it is crucial in this case that letter reaches proposer. If there is no delivery of letter, acceptance could be treated as
having been completed from viewpoint of proposer but not from viewpoint of acceptor. Of course this will give rise to an
awkward situation of only one party to contract, being treated as bound by contract though no one would be sure as to
where letter of acceptance had gone.
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Ex: Conditions on reverse of a train ticket, air ticket, bill issued by service providers.
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Ex: Acceptance of document (e.g. ticket or receipt).
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Ex: Where a passenger undertakes a travel, conditions of travel are printed at back of tickets, sometimes these special
conditions are brought to notice of the passenger, sometimes not. In any event, passenger is treated as having accepted
special condition moment he bought his ticket.
Ex: P delivered some clothes to drycleaner for which she received a laundry receipt containing a condition that in case
of loss, customer would be entitled to claim 15% of market price of value of article, P lost her new saree. Held, terms
were unreasonable & P was entitled to recover full value of saree from drycleaner.
Ex: A transport carrier accepted the goods for transport without any conditions. Subsequently, he issued a circular to
the owners of goods limiting his liability for the goods. In such a case, since the special conditions were not
communicated prior to the date of contract for transport, these were not binding on the owners of goods.
REVOCATION OF OFFER & ACCEPTANCE

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Ex: Bidder at auction may withdraw his bid before it is accepted by auctioneer by fall of hammer.
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TIME FOR REVOCATION OF OFFER & ACCEPTANCE (Section 5) - [Imp] ™
Ex: A proposes, by a letter sent by post, to sell his house to B. B accepts proposal by a letter sent by post. A may revoke
his proposal at any time before or at moment when B posts his letter of acceptance, but not afterwards. Whereas B may
revoke his acceptance at any time before or at moment when letter communicating it reaches A, but not afterwards.

WHEN COMMUNICATION OF REVOCATION IS COMPLETE [SECTION 4]
CONTRACT THROUGH POST

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AGREEMENTS TO AGREE IN FUTURE

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CONSIDERATION [Sec 2(d)]

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BASIC FEATURES OF CONSIDERATION
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Ex: R saves S’s goods from fire without being asked to do so. R cannot demand any reward for his services, as act being
done voluntary.
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Ex: Fees of coaching class can be paid by any person (father, brother, mother, sister of a student) though contract is
between coaching class & student.

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Ex: A man promises to discover treasure by magic. This transaction can be said to be void as it is illusory.
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Ex: A promises to pay Rs 1 lacs to B if he kills C. The agreement is void as killing someone is unlawful.
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Ex: X promises to sell a house worth Rs. 6 lacs for Rs. 1 lac only. Adequacy of price in itself shall not render transaction
void, unless party pleads that transaction takes place under coercion, undue influence or fraud.
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Ex: Promise to pay money to a witness is void (because he is legally bound to give witness for giving justice to
innocent person).
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Ex: A pays Rs. 5,000 to B & B promises to deliver to him a certain quantity of wheat within a month. In this case A pays
amount, whereas B merely makes a promise. Therefore, consideration paid by A is executed, whereas consideration
promised by B is executory.
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Ex: Ramu renders some services to Shamu @ Shamu’s request in November. In December,
Shamu promises to pay a sum of Rs 10000 to Ramu for his services. Services of Ramu is past
consideration here.

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Ex: In case of cash sale, promise to pay price & promise to deliver goods are performed
simultaneously.
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Ex: X agrees to deliver 100 kgs of wheat to Y after a week. Y also agrees to pay money after a
week.
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EXCEPTION TO THE RULE OF “NO CONSIDERATION, NO CONTRACT”

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Ex: A husband, by a registered agreement promised to pay his earnings to his wife. Held the agreement though without
consideration, was valid.
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Ex: A is indebted to C for Rs. 60,000 but debt is barred by the Limitation Act. A signs a written promise now to pay Rs.
50,000 in final settlement of debt. This is a contract without consideration, but enforceable.
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SUIT BY A THIRD PARTY TO A CONTRACT [DOCTRINE OF PRIVITY OF CONTRACT]

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Ex: S agrees to transfer certain properties to T to be held by T in trust for benefit of B. B can enforce agreement though
he was not a party to the agreement.
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Ex: S sells goods to B & is entitled to receive price. S may by giving notice to B assign his right to receive price in favour
of third party X. X, assignee, may then sue B for price of goods.

Ex: If L gives to M Rs. 20,000 to be given to N & M informs N that he is holding money for him, but afterwards M refuses
to pay money. N will be entitled to recover same from M.
Ex: X receives money from Y for paying it to Z. X admits receipt of that amount to Z. Z can recover amount from X, even
though money is due from Y.
CAPACITY TO CONTRACT
MEANING:
WHO IS COMPETENT TO CONTRACT [Sec 11]
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PROVISIONS RELATED TO MINOR’s AGREEMENT
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Ex: If a minor sells a house for 5 lacs & later on files a suit to set aside the sale on ground of minority, he may be
directed by the court to refund money received by him.
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Ex: X, a minor makes a promissory note in the name of Y. On attaining majority, he cannot ratify it & if he makes a new
promissory note in place of old one, here new promissory note which he executed after attaining majority is also void
being without consideration.
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Ex: A, a minor, advanced certain sum of money to B. B executed a mortgage of his immovable property in favour of A,
as a security of money advanced by him. Mortgage can be enforced by transactions is for his benefit.
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FREE CONSENT
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SALMOND’S THEORY
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COERCION (Section 15)

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Ex: X threatens to kill Y if he does not sell his house for Rs. 1 lac to X. Y sells his house & receives payment. Here Y’s
consent was obtained by coercion. Hence contract is voidable at option of Y. If Y decides to avoid contract, he will have
to return Rs. 100000 which he had received from X.
Ex: Where husband obtained a release deed from his wife & son under a threat of committing suicide, transaction was
set aside on ground of coercion, suicide being forbidden by IPC. Threat of suicide amounts to coercion.
UNDUE INFLUENCE (Section 16)
(Ex: Master & servant).

(Ex: Trustee& beneficiary).
(Ex: Medical attendant & patient).
Ex: A having advanced money to his son, B, during his minority, upon B’s coming of age obtains, by misuse of parental
influence, a bond from B for a greater amount than sum due. A employs undue influence.
Ex: A, a man enfeebled by disease or age, is induced by B’s influence over him as his medical attendant, to agree to pay
B an unreasonable sum for his professional services. B employs undue influence.
Ex: A applies to a banker for a loan at a time when there is a stringency in money market. The banker declines to make
loan except at an unusually high rate of interest. A accepts loan on these terms. This is a transaction in ordinary course
of business, & contract is not induced by undue influence.
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Ex: A, a money lender advances Rs. 1 lac to B, an agriculturist & by undue influence induces B to execute a bond for Rs.
2 lacs with interest at 6% pm. Court set aside bond, ordering B to repay Rs. 1 lac with such interest as may seem just.
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Ex: A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be
unconscionable. It lies on B to prove that the contract was not induced by undue influence.
FRAUD (Section 17)

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Whether silence amount to fraud [V. IMP]

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Ex: H sold to W some pigs which were to his knowledge suuering from fever. The pigs were sold ‘with all faults’ & H
did not disclose the fact of fever to W. Held there was no fraud. [Word vs. Hobbs. (1878)].
Ex: A broker was asked to buy shares for client. He sold his own shares without disclosing this fact. Client was
entitled to avoid contract or affirm it with a right to claim secret profit made by broker on transaction since
relationship b/w broker & client was relationship of utmost good faith. (Regier V. Campbell Staurt).
Ex: A sells, by auction, to B, a horse which A knows to be unsound, A says nothing to B about unsoundness of horse.
This is not fraud by A.

Ex: A says to B that if you do not deny it, I shall assume that horse is sound, & A says nothing. Here A’s silence is
equivalent to speech.
Ex: A & B being traders, enter into a contract. A has private information of a change in prices which would affect
B’s willingness to proceed with contract. A is not bound to inform B.
MISREPRESENTATION (Section 18)
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: A makes a positive statement to B that C will be made the director of a company. A makes statement on information
derived, not directly from C but from M. B applies for shares on faith of the statement which turns out to be false. The
statement amounts to misrepresentation, because information received second-hand did not warrant A to make
positive statement to B.
Ex: ‘A’ believed engine of his motor cycle to be in an excellent condition. ‘A’ without getting it checked in a workshop,
told to ‘B’ that motor cycle was in excellent condition. On this statement, ‘B’ bought motor cycle, whose engine proved
to be defective. Here, ‘A’s statement is misrepresentation as statement turns out to be false.
Ex: A by a misrepresentation leads B to believe erroneously that 750 tons of sugar is produced per annum at factory
of A. B examines accounts of the factory, which should have disclosed, if ordinary diligence had been exercised by B,
that only 500 tons had been produced. Thereafter B purchases factory. In circumstance, B cannot repudiate contract
on ground of A’s misrepresentation.
Ex: Where a party to a contract commits fraud or misrepresentation, but other party is not, in fact, misled by such
fraud or misrepresentation, contract cannot be avoided by later. (Explanation to Section 19). Thus, when a seller of
specific goods deliberately conceals a fault in order that buyer may not discover it even if he inspects goods but buyer
does not in fact, make any inspection, buyer cannot avoid contract, as he is not in fact deceived by conduct of seller.
MISTAKE
1. MISTAKE OF FACTS
1.
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Ex: If A intends to contract with B only, but enters into contract with C believing him to be B, contract is
void. [Cundy vs Lindsay & co]
Ex: M, an old man of poor sight endorsed a BOE thinking that it was a guarantee. It was held that there was
no contract on ground that mind of signer did not accompany signature.
2.
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2. MISTAKE OF LAW
LEGALITY OF OBJECT & COSIDERATION

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CASES WHEN OBJECT & CONSIDERATION IS UNLAWFUL:
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Ex: An agreement to print a book in violation of another’s copyright is void, as object is
to cause injury to property of another. It is also void as object of agreement is forbidden
by law relating to copyright.
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DOCTRINE OF PUBLIC POLICY

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Ex: A promises to drop a prosecution against B for robbery & B promises to restore stolen property, agreement is
unlawful as it is against the public policy.
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Ex: Appointment of officers by taking bribes.
Ex: An agreement to pay money to a public servant in order to induce him to retire from his office so that another
person may secure appointment is void.
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Ex: P files a suit against Q for the recovery of a claim of Rs 100000. X promised to give P Rs 20000 for the cost of
litigation & P promises to return him Rs 40000 if he is successful in his suit. This is an agreement by way of Champerty.
But if P would have been liable to pay Rs 20000 only, then it was an agreement of Maintenance.
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Ex: A promised to marry none other than Ms B & in default pay her a sum of Rs 100000. A married someone else &
B sued A for recovery of sum. Held that contract was in restraint of marriage & hence void.

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Ex: Doctors employed in Govt. service are usually not allowed to carry on private practice.
Ex: An employee who possesses certain trade secrets, agreed not to carry on similar business during 5 years after
termination of service.

Ex: An agreement to restraint a servant form competing for 5 years after period of service, is void.
Ex 1: B, a physician & surgeon, employs A as an assistant for a term of three years & A agrees not to practice as a surgeon
& physician during these three years. The agreement is valid & A can be restrained by an injunction if he starts
independent practice during this period.
Ex 2: An agreement by a manufacturer to sell during a certain period his entire production to a wholesale merchant is
not in restraint of trade.
Ex 3: Agreement among sellers of a particular commodity not to sell commodity for less than a fixed price is not an
agreement in restraint of trade.
VOID AGREEMENTS
UNCERTAIN AGREEMENT
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Agreement to do impossible act:

AGREEMENT, THE CONSIDERATION OR OBJECT OF WHICH IS UNLAWFUL IN PART
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Ex: A promises to superintend, on behalf of B, a legal manufacturer of indigo & an illegal traffic in other articles. B
promises to pay A salary of Rs. 20,000 per month. The agreement is void, object of A’s promise & consideration for B’s
promise being in part unlawful.
WAGERING AGREEMENT
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Ex: A & B enters into an agreement that if it rains on Monday, A will pay Rs 10,000 to B & if it does not rain on Monday, B
will pay Rs. 10,000 to A. This is a wagering agreement.
Effects of wagering agreements

Transactions similar to Wager (Gambling)
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Ex: A & B enter into an agreement in which A promises to pay Rs. 2,00,000 provided ‘Chetak’ wins horse race competition.
This is a wagering transaction.
However, Section 30 is not applicable in an agreement to contribute toward plate, prize or sum of money of value of Rs.
5 lacs or above to be awarded to winner of a horse race.
Transactions resembling with wagering transaction but are not void
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CONTINGENT CONTRACT
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Ex. Contracts of insurance.
Ex: A contract to pay Rs 100000 to B, if B’s house is destroyed by fire. This is a contingent contract.
ESSENTIAL ELEMENTS OF A VALID CONTINGENT CONTRACT

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Rules as to enforcement of Contingent Contracts
A contracts to pay B a sum of money

if it rains today. Thus B can enforce
the contract if it rains today.
A contracts to pay B a sum of money

if it does not rains today. Thus B can
enforce contract if it does not rains
today.
A promised to pay B a sum of money
if a certain ship returns within a
year. The contract can be enforced if
returns within year & contract
becomes void if ship sinks within a
year.
A promised to pay B a sum of money
if a certain ship does not return

within a year. The contract can be

enforced if does not return within
year or sinks within a year.
Distinction between Contract of Insurance & Wagering Agreement
Distinction between Wagering Agreement & Contingent Contract:
PERFORMANCE OF CONTRACT

TYPES OF PERFORMANCE

Ex: X borrows money from Y with a promise to return it after 1 month. X repays money after 1 month. This is actual
performance.
Ex: P promises to deliver certain goods to R. P takes goods to fixed place but R refuses to accept delivery. This is
attempted performance as promisor has offered performance but promisee has refused to accept it.
ESSENTIAL ELEMENTS OF A VALID TENDER
EFFECT OF REFUSAL OF PARTY TO PERFORM PROMISE
Ex: A, singer, enters into contract with B (manager of theatre) to sing at his theatre 2 nights in every week for 2 months
& B engages to pay her Rs 1,000 for each night’s performance. On 6th night, A wilfully absents herself from theatre. B is
entitled to put an end to contract & may claim damages from A. or he may continue with contract.
BY WHOM CONTRACT MAY BE PERFORMED



Ex: A receiver certain goods from B promising to pay Rs 10,000. Later on A expressed his inability to make payment.
C, a third person pays Rs 6,000 to B on behalf of A. B is entitled to recover only Rs 4000 from A.






Ex: A, B & C jointly promised to pay Rs. 9 lacs to D. D released A from liability. In this case, release of A does not
discharge B & C from their liability. They remain liable to pay entire amount of Rs. 9 lacs to D. & though A is not liable
to pay to D, but he remains liable to pay to B & C i.e. he is liable to make contribution to other joint promisors.
Ex: A, B & C jointly promised to pay Rs. 6,00,000 to D. Here A, B & C must jointly perform promise. If A dies before
performance, then his legal representatives must jointly with ‘B’ & ‘C’ perform promise, & so on. & if all three (A, B
& C) die before performance, then legal representatives of all must jointly perform promise.
DEVOLUTION OF JOINT RIGHTS



Ex: A, in consideration of Rs. 5,00,000 rupees lent to him by B & C, promises B & C jointly to repay them that sum with
interest on a specified day but B dies. In such case, right to demand payment shall rest with B’s legal representatives,
jointly with C during C’s life-time & after death of C, with legal representatives of B & C jointly.
TIME & PLACE FOR THE PERFORMANCE OF THE PROMISE

CONSEQUENCES OF NON-PERFORMANCE WITHIN SPECIFIED TIME





WHETHER TIME IS THE ESSENCE OF CONTRACT




PERFORMANCE OF RECIPROCAL PROMISES


Ex: In a contract for sale, A promises to deliver the goods to B at fixed price & B promises to pay the price on delivery.
Such promises are called reciprocal promises.
Types of Reciprocal Promises:


Ex: A & B contract that A shall deliver goods to B to be paid for by B on delivery. A need not deliver goods, unless B is
ready & willing to pay for goods on delivery.
If A is unwilling to deliver rice on payment, A will be guilty of breach of promise & breach would relieve B of obligation
to perform his promise & would enable B to treat contract as at an end.

Ex: A hires B’s ship to take in & convey, from Kolkata to the Mauritius, a cargo to be provided by A, B receiving a certain
freight for its conveyance. A does not provide any cargo for ship. A cannot claim performance of B’s promise, & must
make compensation to B for loss which B sustains by non-performance of contract
Ex: A & B contract that B shall execute some work for A for a thousand rupees. B is ready & willing to execute the work
accordingly, but A prevents him from doing so. The contract is voidable at the option of B; & if he elects to rescind it, he
is entitled to recover from A compensation for any loss which he has incurred by its non-performance.
IMPOSSIBILITY OF PERFORMANCE
TYPES OF IMPOSSIBILITY OF PERFORMANCE









APPLICABILITY OF SUPERVENING IMPOSSIBILITY

1.

Ex: X agreed to sell his crop of wheat. The entire crop was destroyed by fire without any fault of either party. The
contract became void & was discharged.
Ex: X & Y contracts to marry each other. Before time fixed for marriage, X goes mad. Contract becomes void.
Ex: X agreed to sell his land to B. Subsequently that land was acquired by the government & A could not execute
the sale deed as he ceased to be the owner by operation of law.
5.
NON-APPLICABILITY OF SUPERVENING IMPOSSIBILITY


Ex: A agreed to supply certain goods to B which were to be imported by C. But C failed to import goods. In this case A
is not discharged from his liability to supply goods to B. A is liable to pay damages to B for non-performance.




Ex: A agreed to give his boat to B on hire for (a) viewing a naval review on occasion of coronation of King Edwards VII
(b) sailing round fleet. Due to king’s illness, coronation was cancelled, but fleet was assembled. It was held that contract
is not discharged as boat could have been used to sail round fleet.
APPROPRIATION OF PAYMENTS







ASSIGNMENT & SUCCESSION



RESTORATION OF BENEFITS UNDER VOIDABLE & VOID AGREEMENT
Ex: An insurance company may rescind a policy on ground that material fact has not been disclosed. When it does so,
premium collected by it in respect of policy reduced by amount of expenses incurred by it in this connection must be
repaid to policy holder.
DISCHARGE OF CONTRACT & BREACH OF CONTRACT



MODES OF DISCHARGE OF CONTRACT

Ex: A owed certain money to B. It was agreed between A, B & C that B would accept C as his debtor instead of
A. In this case A is discharged from his liability to pay debt to B.
Ex: acceptance of a less sum of money where more is due.
Ex: Debt can be realized within 3 years; else it will become time-barred debt & will be irrecoverable.





Ex: A took a land on lease from B. Subsequently, A purchases that very land. Now, A becomes owner of land &
ownership rights being superior to rights of a lessee, earlier contract of lease stands terminated.
REMEDIES FOR BREACH OF CONTRACT








Ex: A agrees to deliver 100 bales of cotton to B @ Rs 100 per bale. Cotton bales were to be delivered in two installments
of 50 each. A delivered first installment but failed to deliver second instalment. B must pay for 50 bales of cotton.









KINDS OF DAMAGES









Ex: If penalty provided by contract is 1,00,000 & actual loss is 70,000, only 70,000 shall be
available as damages (i.e amount of actual loss) & not amount stipulated. But if loss is, say,
1,50,000, then only, 1,00,000 shall be recoverable.

LIQUIDATED DAMAGES & PENALTY

QUASI CONTRACT





Basis of Quasi-Contracts



Salient Features of Quasi Contract:





CASES OF QUASI CONTRACT







Ex: A pizza was delivered by mistake to my house by a delivery boy. I treated pizza as my own & ate it. I am bound to
pay for pizza as per section 70.


Ex: A & B jointly owes Rs 100 to C. A alone pay Rs 100 to C & B not knowing this fact, pays Rs 100 to C. C is bound to
repay amount to B.

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CHAPTER 1: INDIAN CONTRACT ACT, 1872

INTRODUCTION TO MERCANTILE LAW

SOURCES OF MERCANTILE LAW [Students are required to remember headings only]

COMMENCEMENT & APPLICABILITY OF INDIAN CONTRACT ACT, 1872

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CONTRACT IN DAY TO DAY USE [Not for Exams]

Difference between Agreement & Contract:

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ESSENTIAL ELEMENTS OF A VALID CONTRACT [Section 10]

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B. ON THE BASIS OF FORMATION

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Ex: Buying a mobile on flipkart.

C. ON THE BASIS OF PERFORMANCE

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SOME IMPORTANT DISTINCTION

2. VOID CONTRACT & VOIDABLE CONTRACT

3. VOID AGREEMENT & ILLEGAL AGREEMENT

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OFFER [SECTION 2(a)]

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ESSENTIAL ELEMENTS OF OFFER

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LAPSE OF OFFER [Sec 4] OR MODES OF REVOCATION OF OFFER

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ACCEPTANCE [Section 2(b)]

RULES AS TO VALID ACCEPTANCE

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COMPLETION OF COMMUNICATION OF OFFER & ACCEPTANCE

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REVOCATION OF OFFER & ACCEPTANCE

TIME FOR REVOCATION OF OFFER & ACCEPTANCE (Section 5) - [Imp] ™

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WHEN COMMUNICATION OF REVOCATION IS COMPLETE [SECTION 4]

CONTRACT THROUGH POST

AGREEMENTS TO AGREE IN FUTURE

CONSIDERATION [Sec 2(d)]

BASIC FEATURES OF CONSIDERATION

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EXCEPTION TO THE RULE OF “NO CONSIDERATION, NO CONTRACT”

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SUIT BY A THIRD PARTY TO A CONTRACT [DOCTRINE OF PRIVITY OF CONTRACT]

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WHO IS COMPETENT TO CONTRACT [Sec 11]

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PROVISIONS RELATED TO MINOR’s AGREEMENT

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COERCION (Section 15)

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(Ex: Master & servant).

FRAUD (Section 17)

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Whether silence amount to fraud [V. IMP]

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