THE INDIAN CONTRACT ACT, 1872 The Law of Contract Constitutes the most important branch of mercantile or commercial law. It affects everybody, more so, trade, commerce an industry. It may be said that the contract is the foundation of the civili!ed world. world. The law relatin" to contract is "overned by the Indian Contract #ct, 1872 $#ct %o. I& of 1872'. The preamble to the #ct says that it is an #ct (to define and amend certain certain parts of the law relatin" relatin" to contract(. contract(. It e)tends e)tends to the whole of India India e)cept e)cept the *tate of +ammu and ashmir. The #ct mostly deals with the "eneral principles and rules "overnin" contracts. The #ct is divisible into two parts. The first part $*ection 1-7' deals with the "eneral principles of the law of contract, and therefore applies to all contracts irrespective of their nature. The second part $*ections 12/-208' deals with certain special inds of contracts, e."., Indemnity and "uarantee, bailment, pled"e, and a"ency. The term contract has been defined by various authors In the followin" manner (# contract is an a"reement creatin" and definin" obli"ations obli"ations between the parties(. -Salmond (# contract is an a"reement enforceable at law, made between two or more persons, by which ri"hts are acuired by one or more to acts or forbearances on the -Anson part of the other or others(. (3very a"reement and promise enforceable at law is a contract(. -Sir Fredrick Pollock The Indian Contract #ct has defined contract in *ection 2$h' as (an a"reement enforceable by law(. These definitions resolve themselves into two distinct parts. 4irst, there must be an a"reement. *econdly, such an a"reement must be enforceable by law. To be enforceable, an a"reement must be coupled with an obli"ation. # contract therefore, therefore, is a combination combination of the two elements elements $1' an a"reement a"reement and . $2'an obli"ation. obli"ation. Agreement #n a"reement occurs when two minds meet upon a common purpose, Le. they t hey mean the same thin" in the same sense at the same time. The meetin" of the minds is called called consensus-ad-idem, consensus-ad-idem, i.e., consent to the matter. *ection 2$e' of the Indian Contract #ct provides that (every promise and every set of promises formin" the consideration consideration for each other is an a"reement.( Obligaton #n obli"ation obli"ation is the le"al duty to do do or abstain from from doin" what what one has promised promised to do or abstain from doin". # contractual obli"ation arises from a bar"ain between he parties to the a"reement who are called the promisor and the promisee. *ection 2$b' says that when the person to whom the proposal is made si"nifies his assent
theret thereto, o, the proposal proposal is said said to be accept accepted5 ed5 and and (a propos proposal al when when accep accepted ted become becomes s a promis promise.( e.( In broad broad sense, sense, theref therefore ore,, a contra contract ct is an e)cha e)chan" n"e e of promises by two or more persons, resultin" in an obli"ation to do or abstain from doin" a particular act, where such obli"ation is r6co"nised and enforced by law. Rights and Obligations here parties have made a bindin" contract, they have created ri"hts and obli" obli"ati ations ons betwe between en themse themselve lves. s. The contra contractu ctual al ri"hts ri"hts and obli"a obli"atio tions ns are correlative, e."., # a"rees with to sell his car for #s. 19,999 to him. In this e)ample the followin" ri"hts and obli"ations have been created $i' # is under an obli"ation to deliver the car to . has a correspondin" correspondin" ri"ht to receive the car. $ii' is under an dbli"ation to pay #s. 19,999 to #. # has a correlative ri"ht to receive #s. 19,999. Agreements which are not Contracts #"reements in which which the idea idea of bar"ain bar"ain is is absent and there is no intention to create le"al relations are not contracts. T hese are $a' Agreements relating relating to social matters: matters: #n #n a"reement a"reement between two persons to "o to"ether to the cinema, or for a wal, does not create a le"al obli"ation on their part to abide by it. *imilarly, if I promise to buy you a dinner and brea that promise I do not e)pect to be liable to le"al penalties. There cannot be any offer and acceptance to hospitality. $b' Domestic arrangements arrangements between husband and wife: In Balfour v. Balfour $1:1:' 2 71, a husband worin" in Ceylone, had a"reed in writin" to pay a house houseee eepi pin" n" allo allowa wance nce to his wife wife livin" livin" in 3n"la 3n"land. nd. ;n receiv receivin" in" inform informati ation on that that she was was unfai unfaithf thful ul to him, him, he stopp stopped ed the allow allowanc ance e Held,he Held, he was entitled to do so. This was a mere domestic arran"ement with no. intentio intention n to create create le"ally le"ally bindin" bindin" relation relations. s. Therefor Therefore, e, there was no contract. Three conseuences follow from the above discusson. $i' To constitute a contract, the parties must intend to t o create le"al relationship. $ii' The law of contract is the law of those a"reements a"reements which create obli"ationsand those obli"ations which have their source in a"reement.
$iii' $iii'
#"reem #"reement ent is the "enus "enus of which which contra contract. ct. is the specie specie and, and, therefore, all contracts are a"reements but all a"reements are not contracts.
ESSENTIAL ELEMENTS OF A ALID CONTRACT CONTRACT
*ecti *ection on 19 of the the Indi Indian an Cont Contra ract ct #ct, #ct, 1872 1872 prov provid ides es that that (all (all contra ract cts s if they they are are made made by the the free free cons consen entt of part partie ies s a"re a"reeme ement nts s are are cont competent to contract, for a lawful consideration and with a lawful ob
theret thereto, o, the proposal proposal is said said to be accept accepted5 ed5 and and (a propos proposal al when when accep accepted ted become becomes s a promis promise.( e.( In broad broad sense, sense, theref therefore ore,, a contra contract ct is an e)cha e)chan" n"e e of promises by two or more persons, resultin" in an obli"ation to do or abstain from doin" a particular act, where such obli"ation is r6co"nised and enforced by law. Rights and Obligations here parties have made a bindin" contract, they have created ri"hts and obli" obli"ati ations ons betwe between en themse themselve lves. s. The contra contractu ctual al ri"hts ri"hts and obli"a obli"atio tions ns are correlative, e."., # a"rees with to sell his car for #s. 19,999 to him. In this e)ample the followin" ri"hts and obli"ations have been created $i' # is under an obli"ation to deliver the car to . has a correspondin" correspondin" ri"ht to receive the car. $ii' is under an dbli"ation to pay #s. 19,999 to #. # has a correlative ri"ht to receive #s. 19,999. Agreements which are not Contracts #"reements in which which the idea idea of bar"ain bar"ain is is absent and there is no intention to create le"al relations are not contracts. T hese are $a' Agreements relating relating to social matters: matters: #n #n a"reement a"reement between two persons to "o to"ether to the cinema, or for a wal, does not create a le"al obli"ation on their part to abide by it. *imilarly, if I promise to buy you a dinner and brea that promise I do not e)pect to be liable to le"al penalties. There cannot be any offer and acceptance to hospitality. $b' Domestic arrangements arrangements between husband and wife: In Balfour v. Balfour $1:1:' 2 71, a husband worin" in Ceylone, had a"reed in writin" to pay a house houseee eepi pin" n" allo allowa wance nce to his wife wife livin" livin" in 3n"la 3n"land. nd. ;n receiv receivin" in" inform informati ation on that that she was was unfai unfaithf thful ul to him, him, he stopp stopped ed the allow allowanc ance e Held,he Held, he was entitled to do so. This was a mere domestic arran"ement with no. intentio intention n to create create le"ally le"ally bindin" bindin" relation relations. s. Therefor Therefore, e, there was no contract. Three conseuences follow from the above discusson. $i' To constitute a contract, the parties must intend to t o create le"al relationship. $ii' The law of contract is the law of those a"reements a"reements which create obli"ationsand those obli"ations which have their source in a"reement.
$iii' $iii'
#"reem #"reement ent is the "enus "enus of which which contra contract. ct. is the specie specie and, and, therefore, all contracts are a"reements but all a"reements are not contracts.
ESSENTIAL ELEMENTS OF A ALID CONTRACT CONTRACT
*ecti *ection on 19 of the the Indi Indian an Cont Contra ract ct #ct, #ct, 1872 1872 prov provid ides es that that (all (all contra ract cts s if they they are are made made by the the free free cons consen entt of part partie ies s a"re a"reeme ement nts s are are cont competent to contract, for a lawful consideration and with a lawful ob
$i'
#n offer or proposal proposal by one party and acceptance acceptance of that offer by another party resultin" in an agreement-consensus-ad-idem.
$ii' #n intention to create le"al le"al relations relations or an intent intent to have le"al conseuences. conseuences. $iii' The a"reement a"reement is supported by lawful lawful consideration. consideration. $iv' The parties to contract contract are le"ally capable capable of contractin". contractin". $v' =enuine consent between >he parties. $vi' The ob
What is an Offer or a Proposal?
#n offer is a proposal by one person, whereby he e)presses his willin"ness to enter into a contractual obli"ation in- return for a promise, act or forbearance. *ection 2$a' defines proposal or offer as (when one person si"nifies to another his willin"ness to do or abstain from doin" anythin" with a view to obtainin" the assent of that other to such act or abstinence, he is said to mae a proposal.(
Rules Governing Governing Offers # valid offer must comply with with the followin" rules $a' #n offer must be clear, definite, complete and final. It must not be va"ue. 4or e)ample, a promise to pay an increased .price for a horse if it proves lucy to promiser, is too va"ue and is not bindin". $b' $b' #n offe offerr must must be comm commun unic icat ated ed to the the offe offere ree. e. #n offe offerr beco become mes s effective only when it has been communicated to the offeree so as to "ive him an opportunity to accept or re
$d' The communication of the offer may be "eneral or specific. here an offer is made to a specific person it is called secific offer and it can be accepted only by that that pers person on.. ut ut when when an offe offerr is addr addres esse sed d to an unce uncert rtai ain n body body of individuals Le. the world at lar"e, it is a general general offer and can be accepted by any member member of the "eneral "eneral public public by fulfillin" fulfillin" the condition condition laid down in the offer. The leadin" case on the sub
cannot claim it from # even thou"h he finds #s lost son and restores him to #. In India also, in the case of Harbha$an %al v. Harcharan %al $#l# 1:2 #ll. 0:', the same rule was applied. In this case, a youn" boy ran away from his fathers home. The father issued a pamphlet offerin" a reward of #s. 99 to anybody who would brin" the boy home. The plaintiff saw the boy at a railway station and sent a tele"ram to the boys father. It was held that the handbill was an offer open to the world world at lar"e lar"e and was was capab capable le to accept acceptanc ance e by any person person who who fulfil fulfilled led the conditions contained in the offer. The plaintiff substantially performed the conditions and was entitled to the. reward offered.
An Offer must be Distinguished Distinguished from $a' An in&itation to treat or an in&itation to make an offe ffer: e."., e."., an auctioneers reuest for bids $which are offered by the bidders', the display of "oods in a shop window with prices mared upon them, or the display of priced "oods in a self-service store or a shope.epers catalo"ue of prices are invitations to an offer. $b' # mere statement statement of intention: intention: e."., an announcement of a comin" auction sale. Thus a person who attended the advertised place of auction could could not sue for breach breach of contac contactt if the auction auction was cancelled cancelled 'Harris 'Harris v. (ickerson $1870' L.#. 8 D 28E'. $c'# mere communication of information in the course of negotiation: e."., a statement of the price at which one is prepared to conside$ ne"otiatin" the sale of piece of land 'Har&e) v. Face) $18:0' #.C. 2'. #n offer that has been communicated,properly continues as such until it lapses, or until it is revoed by the offeror, or re
offeree. Lapse of Offer *ection E deals with various modes of lapse of an offer. It states that an offer lapses if $a' it is not accepted accepted within within the specifi specified ed time $if any' any' or after a reasonable reasonable time, if none is specified. $b' it is not accepted accepted in the the mode prescrib prescribed ed or if no mode is prescr prescribed ibed in some usual and reasonable manner, e."., by sendin" a letter by mail when early reply was reuested
$c' the offeree offeree re
$f' $f' the the offe offere ree e mae maes s a coun counte terr offe offer, r, it amou amount nts s to re
Acceptance # contract emer"es from the acceptance of an offer. #cceptance is the act of assentin" by the offeree to an offer. Fnder *ection 2$b' of the Contract #ct uwhen a person to whom the proposal is made si"nifies his assent thereto, the proposal is said to be accepted. # proposal, when accepted becomes a promise.(. Rules Governing Acceptance Acceptance $a' #cceptance may may be e)press e)press Le. by words words spoen or or written or implied
from the conduct of the parties. prescribed6-#e. offer must be $b' If a particular method of acceptance is prescribed6-#e. accepted in the prescribed manner. (
$c' #cceptanc #cceptance e must be unualif unualified ied and absolu absolute te and must must correspond correspond with with all the terms of the offer. $d' # counte counterr offer offer or condit condition ional al acceptan acceptance ce operate operates s as a re
$e' #cceptance must be communicated to the offeror, for acceptance is complete the moment it is communicated. here the offeree merely intended to accept but does not communicate his intention to th.e offeror, there is no contract. Bere mental acceptance is not enou"h. $f'
Bere silence on the part of the offeree does not amount to acceptance. ;rdinarily, the offeror cannot frame his offer in such a way as to mae the silence or inaction of the offeree as an acceptance. In other words, the offeror can prescribed the mode of acceptance but not the mode of re
$"' If the offer is one which is to be accepted by bein" acted upon, no communication of acceptance to the offeror is necessary, unless communication is stipulated for in the offer itself. Thus, if a reward is offered for findin" a lost do", the offer. is accepted by findin" the do" after readin" about the offer, .and it is unnecessary before be"innin" to search for the do" to "ive notice of acceptance to the offeror. $h' #cceptance must be "iven within a reasonable time and before the offer lapses or is revoed. #n offer becomes irrevocable by acceptance. #n acceptance ne&er precedes an offer. There can be no acceptance of an offer which is not communicated. *imilarly, performance of conditions of an offer without the nowled"e of the specific offer, is no acceptance. Thus in %alman Shukla v. *auri Duff $1:10' where a servant brou"ht the boy without nowin" of the reward, he was held not entitled to reward because he did not now about the offer. Standing Offers
here a person offers to another to supply specific "oods, up to a stated uantity or in any uantity which may be reuired, at a certain rate, durin" a fi)ed period, he maes a standin" offer. Thus, a tenderto supply "oods as and when reuired, amounts to a standin" offer. # standin" offer or a tender is of the nature of a continuin" offer. #n acceptance of such an offer merely amounts to an intimation that the offer will be considered to remain open durin" the period specified and that it will be accepted from time to time by placin" order durin" the period specified uantities. 3ach successive order "iven, while the offer remains in force, is an acceptance of the standin" offer as to the uantity ordered, and creates a seperate contract. it does not bind either party unless and until such orders are "iven.
here G tendered to supply "oods to L upto a certain amount and over a certain period, Ls order did not come up to the amount e)pected and G sued for breach of contract Held: 3ach order made was a separate contract and G was bound to fulfill orders made, but th6re was no obli"ation on L to mae any order to all 'Perci&al %td. v. %.!.!. '++.
Tickets
Ticets purchased for entrpnce into places of amusement, or ticets issued by railways or bus companies, cloc-room ticets, and many other contracts set out in printed documents contain numerous terms, of many of which the partly receivin" the ticet or document is i"norant. If a passen"er on a railway train receives a ticet on the face of which is printed Hthis ticet is issued sub
Contracts by post are sub
to the contrary. $b' #n offer is made only when it actually reaches the offeree and not .before, i.e., when the letter containin" the offer is delivered to the offeree. $c' #n accepta.nce is made as far as the offeror is concerned, as soon as the letter containin" the acceptance is posted, to offerors correct address5 it binds the offeror, but not the acceptor. #n acceptance binds the acceptor only when the letter containin" the acceptance reaches the offeror. The result is that the acceptor can revoe his acceptance before it reaches the offeror. $d' #n offer may be revoed before the letter containin" the acceptance is posted. #n acceptance can be revoed before it reaches the offeror.
Contracts over the Telephone Contracts over the telephone are re"arded the same in principle as those ne"otiated by the parties in the actual presence of each other. In both cases an oral offer is made and an oral acceptance is e)pected. It is important that the acceptance must be audible, heard and understood by the offeror. If durin" the conversation the telephone lines "o, (dead( so that the offeror does not hear the offerees word of acceptance, there is no contract at the moment. If the whole conversation is repeated and the offeror hears and understands the words of acceptance, the contract is complete '/anhai)ala0&. Dineshwarchandra $1::' #I@, B.G. 20/'.
b) Intention to Create Legal Relations
The second essential element of a valid contract is that there must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. If there is no such intention on the part of the parties, there is no contract between them. Agreements of a social or domestic nature do not contemplate legal relationship. As such they are not contracts.
# proposal or an offer is made with a view to obtain the assent to the other party and when that other party e)presses his willir1:ness to the act or abstinence proposed, he accepts the offer and a contract is made between the two. ut both offer and acceptance must be made with the intention of creatin" le"al relations between the parties. The test of intention is ob
Need for Consideration Consideration is one of the essential elements of a valid contract. The requirement of considera,tion stems from the policy of extending the arm of the law to the enforcement of mutual romises of arties. A mere romise is not enforceable at law. For e#amle, if A romises to make a gift of 1s. 233 to B, and subse4uentl) changes his mind, B cannot succeed against A for breach of romise, as B has not. gi&en an)thing in return. 5t is onl) when a romise is made for something in return from the romisee, that such romise can be enforced b) law against the romisor. 6his something in return is the consideration for the romise.
Definition of !onsideration Sir Fredrick Pollock has defined consideration "as an act or forbearance of one party, or the promise thereof is the price for which the promise of the other is bought." It is "some right, interest, profit, or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other" (Currie v. Misa (1875) L.R. 10 Ex. 153). Section 2(d) of the Indian Contract Act, 1872 defines consideration thus: "when
at the desire of the promisor, the promisee or any other person has done or abstained
from doin", or does or abstains from doin", or promises to do or to abstain from oin", somethin", such act or abstinence or promise is called a consideration for the promise( . The fundamental principle that consideration is essential in every contract, is laid down by both the definitions but there are some important points of difference in respect of the nature and e)tent of consideration and parties to it under the two systems of law $a' !onsideration at the desire of the romisor: *ection 2$d' of the #ct be"ins with the statement that consideration must move at the desire or reuest of the promisor. This means that whatever is done must have been done at the desire of the promisor and not voluntarily or not at the desire of a third party. If # rushes to s help whose house is on fire, there is no consideration but a voluntary act. ut if # "oes to s help at s reuest, there is "ood consideration as did not wish to do the act "ratuitously. $b' !onsideration ma) mo&e from the romisee or an) other erson: In 3n"lish law, consideration must move from the promisee, so that a stran"er to the consideration cannot sue on the contract. # person seein" to enforce a simple contract must prove in court that he himself has "iven the consideration in return for the promise he is seein" to enforce. In Indian law, however, consideration may move from the promisee or any other person, so that a stran"er to the consideration may maintain a suit. In !hinna)a v.1a,ma)a $1882' / Bad. 107, a lady by a deed of "ift made over certain property to her dau"hter directin" her to pay an annuity to the donors brother as had been done by the donor herself before she "ifted the property. ;n the same day, her dau"hter e)ecuted in writin" in favour of the donors brother a"reein" to pay the 6nnuity. #fterwards the donee $the dau"hter' declined to fulfil her promise to pay her uncle sayin" that no consideration had moved from him. The Court, however, held that the uncle could sue even thou"h no part of the consideration received by his niece moved from him. The consideration from her mother was sufficient consideration. #ri%it& o" Contract
# stran"er to a contract cannot sue both under the 3n"lish and Indian law for want of privity of contract. The followin" illustration e)plains this point. In Dunlo Pneumatic 6)re !o. v. Selfridge %td. $1:1' #.C. 8/7. supplied tyres to a wholesaler, &, on condition that any retailer to whom & resupplied the tyres should promise &, not to sell them to the public below s list price. & supplied tyres to * upon this condition, but nevertheless * sold the tyres below the list price. Held: There was a contract between and & and a contract between & and *. Therefore, could not obtain dama"es from *, as had not "iven any consideration for *s promise tc & nor was he party to the contract between and &. Thus, a person who is not a party to a contract cannot sue upon it even thou"h the contract is for his bC6=fit. #, who is indebted to , sells his property to C, and C
he purchaser of the property, promises to payoff the debt to . In case C fails to pay , has no ri"ht to sue C for there is no privity of contract between and C. The leadin" 3n"lish case on the point is 6weddle v. Atkinson $18E1' 1 and *ection 0:0. In this case, the father of a boy and the father of a "irl who was to be married to the boy, a"reed that each of them shall pay a sum of money to the boy who was to tae up the new responsibilities of married life. #fter the demise of both the contractin" parties, the boy $the husband' sued the e)ecutors of his father-in-law upon the a"reement between his father-in-law and his father. Held: the suit was not maintainable as the boy was not a party to the contract. "#cetion to the doctrine of ri&it) of contract: oth the Indian law and the 3n"lish law reco"ni!e certain e)ceptions to the rule that a stran"er to a contract cannot sue on the contract. In the followin" cases, a person who is not a party to a contract can enforce the contract $a' # beneficiary under an a"reement to create a trust can sue upon the a"reement, thou"h not a party to it, for the enforcement of the trust so as to "et the trust e)ecuted for his benefit. In /hawa$a 7uhammad v. Hussaini Begum, $1:19' 02 #ll. /19, it was held that where a Bohammedan lady sued her father-in-law to recover arrears of allowance payable to her by him under an a"reement between him and her own father in consideration of her marria"e, she could enforce the promise in her favour insofar as she was a benefi6iary under the a"reement to mae a settlement in her favour, and she was claimin" as beneficiary under such settlement. $ii' #n assi"nee under an assi"nment made by the parties, or by the operation of law $e.". in case of death or insolvency', can sue upon the contract for the enforcement of his ri"hts, tittle and interest. ut a mere nominee $Le., the person for whose benefit another has insured his own life' cannot sue on the policy because the nominee is not an assi"nee. $iii' In cases of family arran"ements or settlements between male members of a Hindu family which provide for the maintenance or e)penses for marria"es of female members, the latter thou"h not parties to the contract, possess an actual beneficial ri"ht which place them in the position of beneficiaries under the contract, and can therefore, sue. $iv' In case of acnowled"ement of liability, e."., where # receives money from for payin" to C, and admits to C the receipt of that amount, then # constitutes himself as the a"ent of C. $v' henever the promisor is by his own conduct estopped from denyin" his liability to perform the promise, the person who is not a party to the contract can sue upon it to mae the promisor liable. $vi' In cases where a person maes a promise to an individual for the benefit of third party and creates a char"e on certain immovable propertyforthe purpose, the third party can enforce the promise (thou"h, he is stran"er to the contract.
Kinds of Consideration Consideration may be $a' "#ecutor) or ,future which means that it maes the form of promise to be performed in the future, e."., an en"a"ement to marry someone5 or $b' "#ecuted or present in which it is an act or forbearance made or suffered for a promise. In other words, the act constitutin" consideration is wholly or completely performed, e."., if # pays today @s. 199 to a shopeeper for "oods which are promised to be supplied the ne)t day, # has e)ecuted his consideration but the shopeeper is "ivin" e)ecutory consideration - a promise to be e)ecuted the followin" day. If the price is paid by the buyer and the "oods are delivered by the seller at the same time, consideration is e)ecuted by both the parties. $c' Gast which means a past act or forbearance, that is to say, an act constitutin" consideration which too place and is complete $wholly e)ecuted' before the promise is made. #ccordin" to 3n"lish law, a consideration may be e)ecutory or e)ecuted but never past. The 3n"lish law is that past consideration is no consideration. 6he 5ndian law recogni8es all the abo&e three kinds of consideration. Rules Governing Consideration $a' 3very simple contact must be supported by valuable consideration otherwise it is formally void sub
(e) #lthou"h consideration must have some value, it need not be adeuate Le., a full return for the promise. *ection 25 $3)p. II' clearly provides that (an a"reement to which the consent of the promisor is freely "iven is not void merely because the consideration is inadeuate.( It is upon the parties to fi) their own prices. 4or e)ample, where # voluntarily a"reed to sell his motor car for @s. 99 to *, it became a valid contract despite the inadeuancy of the consideration. $f'
Consideration must be lawful, e."., it must not be some ille"al act such as payin" someone to commit a crime. If the consideration is unlawful, the a"reement is void.
$"' Consideration must be somethin" more than the promisee is already bound to do for the promisor. Thus, an a"reement to perform an e)istin" obli"ation
made with the person to whom the obli"ation is already owed, is not made for consideration. 4or e)ample, if a seaman deserts his ship so breain" his contract of service and is induced to return to his duty by the promise for e)tra wa"es, he cannot later sue for the e)tra wa"es since he has only done what he had already contracted for Stilk v. 7)rick $189:'.
When Consideration' not Necessary The "eneral rule is that an a"reement made without consideration is void. ut *ection 2 of the Indian Contract #ct lays down certain e)ceptions which mae a promise without consideration valid and bindin". Thus, an a"reement without consideration is valid 1. If it is e)pressed in writin" and re"istered and is made out of natural love and affection between parties standin" in a near relation to each other5 or 2. If it is made to compensate a person who has already done somethin" voluntarily for the promisor, or done somethin" which the promisor was le"ally compellable to do5 or 0. If it is a promise in writin" and si"ned by the person to be char"ed therewith, or by his a"ent, to pay a debt barred by the law of limitation. /. esides, accordin" to *ection 18 of the Indian Contract #ct, consideration is not reuired to create an a"ency. . In the case of "ift actually made, no consideration is necessary. There neednot be nearness of relation and even if it is, there need not be any natural love and
affection between them. . The reuirements in the above e)ceptions are noteworthy. The f irst one reuires written and re"istered promise. The second may be oral or in writin" and the third must be in writin". Illustrations #, for natural love and affection, promises to "ive his son @s. 19,999. # put his promise to 8 into writin" and re"istered it. This is a contract. # re"istered a"reement between a husband and his wife to pay his eamin"s to her is a valid contract, as it is in writin", is re"istered, is between parties standin" in near relation, and is for love and affection 'Poonoo Bibi v. F)a8 Buksh, $187/' 1 89m L#. 7'. ut where a husband by a re"istered document, after referrin" to uarrels and disa"reement between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence, it was held that the promise was unenforceable, as it was not made for love and affection '1a$luckh) Deb v. . Bhootnath $1:99' / C..%. /88'.
Whether Gratuitous Promise can be Enforced # "ratuitous promise to subscribe to a charitable cause cannot be enforced, but if the promises is put to some detriment as a result of his actin" on the faith of the promisee and the promisor new the purpose and also new that on the faith of the subscription an obli"ation mi"ht be incurred, the promisor would be bound
by promise '/edar (ath v. *orie 7ohan 9. It may be noted that it is not necessary that the promisor should benefit by the consideration, it is sufficient if the promisee does some act from which a third person is benefited and he would not have done that act but for the promise of the promisor. 4or e)ample, J reuests & for loan, who a"rees to "ive loan to J if * "ives "uarantee of repayment of the loan. * "ives such a "uarantee of repayment by J. Thereupon & "ives loan to J. Here * will be promisor and & the promisee, but from &s action, benefit is derived by J and not by *. & would not have "iven the loan to J had * not "iven the "uarantee of repayment of loan. Thus the benefit conferred on J by & at the reuest of * is a sufficient consideration on the part of & as a"ainst the promise of * to replay the loan. #lternatively, it may be said that the detriment which & suffered by "ivin" loan to J at the reuest of * is sufficient consideration on the part of & in respect of the promise of * to repay the loan. Consideration therefore, is some detriment to the promisee or some benefit to the promisor. etriment to one person and benefit to the other are the same thin"s looed from two an"les. ;rdinarily a promisor is not bound by his promise, unless some consideration is offered by the promisee. Terms ust be Certain It follows from what has been e)plained in relation to offer, acceptance and consideration that to be bindin", an a"reement must result in a contract. That is to say, the parties must a"ree on the terms of their contract. They must mae their intentions clear in their contract. The Court will not enforce a contract the terms of which are uncertain. Thus, an a"reement to a"ree in the future $a contract to make a contract will not constitute a bindin" contract e."., a promise to pay an actress a salary to be ;mutuall) agreed between us; is not a contract since the salary is not yet a"reed %oftus v. 1oberts (1902). *imilarly, where the terms of a final a"reement are too va"ue, the contract will fail for uncertainty. Hence, the terms must be definite or capable of bein" made definite without further a"reement of the parties. The le"al ma)im, therefore, is (a contract to contract is not a contract;. If you a"ree (sub
#"reement 'consensus ad item an unualified acceptance of a definite offer5
$ii' #n intent to create le"al obli"ations5 and $iii' Consiideration.
FLA'S IN CONTRACT There may be the circumstances under which a contract made under these rules
may still be bad, because there is a flaw, vice or error somewhere. #s a result of such a flaw, the apparent a"reement is not a real a"reement. here there is no real a"reement, the law has three remedies Firstl): The a"reement may be treated as of no effect and it will then be nown as void a"reement. Secondl): The law may "ive the party a""rieved the option of "ettin" o.ut of his bar"ain, and the contract is then nown as voidable. 6hirdl): The party at fault may be compelled to pay dama"es to the other party.
(a) Void Agreement # void a"reement is one which is destitute of all le"al effects. It cannot be enforced and confers no ri"hts on either party. It is really not a contract at all, it is non-e)istent. Technically the words void contract are a contradiction in terms. ut the e)pression provides a useful label for describin" the situation that arises when a contract is claimed but in fact does not e)ist. 4or e)ample, a minors contract is void.
(b) Voidable Contract # voidable contract is one which a party can put to an end. He can e)ercise his option, if his consent was not free. The contract will, however be bindin", if he does not e)ercise his option to avoid it within a reasonable time. The consent of a party is not free and so he is entitled to avoid the contract, if he has "iven misrepresentation, fraud, coercion or undue influence.
(c) Illegal Agreement #n ille"al a"reement is one which, lie the void a"reement has no le"al effects as between the immediate parties. 4urther transactions collateral to it also become tainted with ille"ality and are, therefore, not enforceable. Garties to an unlawful a"reement cannot "et any help from a Court of law, for no polluted hands shall touch the pure fountain of
Incapacity
$ii' $iii' $iv' $v' $vi' $vii'
Bistae Bisrepresentation 4raud Fndue Influence Coercion Ille"ality
$viii' Impossibility. !i" #la$ in Capacity
( Capacity and %ersons
In law, persons are either natural or artificial. %atural persons are human bein"s and artificial persons are corporations. Contractual capacity or incapacity is an incident of personality. The "eneral rule is that all natural persons have full capacity to mae bindin" contracts. ut the Indian Contract #ct, 1872 admits an e)ception in the case of $i' minors, $ii' lunatics, and $iii' persons disualified from contractin" by any law to which they are sub
s !ontract #ccordin" to the Indian Ba
The followin" points must be ept in mind with respect to minors contract $a' # minors contract is alto"ether void in law, and a minor cannot bind himself by a contract. If the minor has obtained any benefit, such as money on a mort"a"e, he cannot be ased to repay, nor can his mort"a"ed property be made liable to pay. $b' *ince the contract is void ab initio, it cannot be ratified by the minor on attainin" the a"e of ma
bindin" on him provided it is for his benefit or is for le"al necessity. 4or, the "uardian of a minor, may enter into contract for marria"e on behalf of the minor, and such a contract would be "ood in law and an action for its breach would lie, if the contract is for the benefit of the minor '1ose Fernande8 v. 0oseh *onsal&es, /8 om. L. @. E70' e."., if the parties are of the community amon" whom it is customary for parents to contract marria"e for their children. The contract of apprenticeship is also bindin". However, it has been held that an a"reement for ser&ice, entered into by a father on behalf of his dau"hter who is a minor, is not enforceable at law '1a$ 1ani v. Prem Adib, $1:/8' 1 89m. L.@. 2E'.
Lunatic&s Agreement !Section '" # person of unsound mind is a lunatic. That is to say for the purposes of main" contract, a person is of unsound mind if at the time when he maes the contract, he is incapable of understandin" it and of formin" rational s agreement is therefore &oid. But if he makes a contract when he is of sound mind, i.e., during lucid inter&als, he will be bound b) it. A sane man who is delirious from fe&er, or who is so drunk that he cannot understand the terms of a contract, or form a rational $udgement as to its effect on his interests cannot contract whilst such delirium or state of drunkenness lasts. A erson under the influence of h)notism is temoraril) of unsound mind. 7ental deca) brought b) old age or disease also comes within the definition. Agreement b) ersons of unsound mind are &oid. But for necessaries sulied to a lunatic or to an) member of his famil), the lunatic>s estate, if an), will be liable. 6here is no ersonal liabilit) incurred b) the lunatic. 5f a contract entered into b) a lunatic or erson of unsound mind is for his benefit, it can be enforced 'for the benefit against the other art) '0ugal /ishore &. !heddu, '+3? 5 All. %.0 ?. Persons Dis4ualified from "ntering into !ontract Some statues dis4ualif) certain ersons go&erned b) them, to enter into a contract. For e#amle, @udh ;%and 1e&enue Act ro&ides that where a erson in @udh is declared as a >dis4ualified rorietor> under the Act, he is incometent to alienate his roert). Alien "nemies # person who is not an Indian citi!en is an alien. #n alien may be either an alien friend or a forei"ner whose soverei"n or *tate is at peace with India, has usually contractual capacity of an Indian citi!en. ;n the declaration of war between his country and India he becomes an alien enemy. # contract with an alien enemy becomes unenforceable on the outbrea of war. 4or the purposes of civil ri"hts, an Indian citi!en of the sub
who is &oluntaril) resident in hostile territory or is carryin" on business there is an alien enemy. Tradin" with an alien enemy is considered ille"al, bein" a"ainst public policy. Foreign So&ereigns and Ambassadors Foreign so&ereigns and accredited reresentati&es of foreign states, i.e., #mbassadors, Hi"h Commissioners. en
%rofessional % rsons In 3n"land, barristers-at law 6re prohibited by the etiuette of their professio6 from suin" for their fees. *o also are t he 4ellow and Bembers of the @oyal Colle"e of Ghysicians and *ur"eons. ut they can sue and be sued for all claims other than their professional fees. In India, there is no such disability and a barrister, who is in the position of an advocate with liberty both to act and plead, has a ri"ht to contract and to sue for his fees '(ihal !hand v. @ilawar /han, 1:00 #ll. L.@. /17'.
Corporations # corporation is an artificial person created by law, e."., a company re"istered under the Companies #ct, public bodies created by statute, such as Bunicipal Corporation of elhi. # corporation e)ists only in contemplation of law and has no physical shape or form. The Indian Cntract #ct does not spea about the capacity of a corporation to enter into a contract. ut if properly incorporated, it has a ri"ht to enter into a contract. It can sue and can be sued in its own name. There are some contracts into which a corporation cannot enter without its seal, and others not at all. # company, for instance, cannot contract to marry. 4urther, its capacity and powers to contract are limited by its charter or memorandum of association. #ny contract beyond such power in ultra &ires and void.
arried (omen 5 n India there is no difference between a man and a woman re"ardin"
contractual capacity. # woman married or sin"le can enter into contracts in the same ways as a man. *he can deal with her property in any manner she lies, provided, of course, she is a ma
The basis of a contract is a"reement, i.e., mutual consent. In other words, the parties should mean the somethin" in the same sense and a"ree voluntarily. It is when there is consent, that the parties are said to be consensus ad idem i.e. their minds have met. %ot only consent is reuired but it must be a free consent. Consent is not free when it has been caused by coercion, undue influence, misrepresentation, fraud or mistae. These elements if present, may vitiate the contract. hen this consent is wantin", the contract may turn out to. be void or voidable accordin" to the nature of the flaw in consent. here there is no consent, there can be no contract as in the case of mutual mistae. here there is consent, but it is not free, a contract is "enerally voidable at the option of the party whose consent is not free. In the case of misrepresentation, fraud, coercion, undue influence, the consent of one of the parties is induced or caused by the supposed e)istence of a fact which did not e)ist.
ii) Mistake )Sections *+ and *! The law believes that contracts are made to be performed. The whole structure of business depends on this as the businessmen depend on the validity of contracts. #ccordin"ly, the law says that it will not aid anyone to evade conseuences on the plea that he was mistaen. ;n the other hand, the law also realises that mistaes do occur, and that these mistaes are so fundamental that there may be no contract at all. If the law reco"nises mistae in contract, the mistae will render the contract &oid. "ffect of 7istake # mistae in the nature of miscalculation or error of
$d' must be on the part of both the parties. Thus, where both the parties t: an a"reement are under a mistae as to a matter of fact essential a"reement, the a"reement is void $*ection 29'. *uch a mistae prevents the formation of any contract at all and the Court will declare it void. 4or e)ample, # a"rees to buy from a certain horse. It turns out that the horse was dead at the time of bar"ain thou"h neither party was aware of the fact. The a"reement is void. 7istake of %aw and 7istake of Fact
Bistaes are of two inds $i' mistae of law, and $ii' mistae of fact. If there is a mistae of law of the land, the contract is bindin" because everyone is deemed to have nowled"e of law of the land and i"norance of law is no e)cuse 'ignorantia $uris non-e#cusat. ut mistae of forei"n law and mistae of private ri"hts are treated as mistaes of fact and are e)ecusable. The law of a forei"n country is to be proved in Indian Courts as ordinary facts. *o mistae of forei"n law maes the contract void. *imilarly, if a contract is made in i"norance of private ri"ht of a party, it would be void, e."., where # buys property which already belon"s to him. 7utual or nilateral 7istake Bistae must be mutual or bilateral, Le., it must be on the part of both parties. # unilateral mistae, Le., mistae on the part of only one party, is "enerally of no effect unless $i' it concerns some fundamental fact and $ii' the other party is aware of the mistae. 4or this reason, error of
$a' 7istake as to e#istence of the sub$ect matter: here both parties believe the sub
In Henkel v. Pae $1879', G wrote to H inuirin" the price of rifles and su""ested that he mi"ht buy as many as fifty. ;n receipt of a reply he wired (send three rifles(. ue to the mistae of the tele"raph cler the messa"e transmitted to H was (send the rifles(. H despatched 9 rifles. Held, there was no contract between the parties. 'd7istake as to 4ualit) of the sub$ect-matter or romise: 7istake as to 4ualit) raises difficult 4uestions. 5f the mistake is on the art of both the arties the contract is &oid. But if the mistake is onl) on the art of one art) difficult) arises. The "eneral rule is that a party to a contract does not owe any duty to the other party to discloses all the facts in his possession durin" ne"otiations. 3ven if he nows that the other party is i"norant of or under some misapprehension as to an important fact, he is under no obli"ation to enli"hten him. 3ach party must protect his own interests unaided. In contract of sale of "oods, this rule is summed up in the ma)im ca&eat emtor $Let the buyer beware.' The seller is under no duty to reveal the defects of his "oods to the buyer, sub
nilateral 7istake as to (ature of the !ontract The "eneral rule is that a person who si"ns an instrument is bound by its terms even if he has not read it. ut a person who si"ns a document under a fundamental mistae as to its nature $not merely as t o its contents' may have it avoided provided the mistae was due to either $a' the blindness, illiteracy, or senility of the person si"nin", or $b' a tric or fraudulent misrepresentation as to the nature of the document. In Foster&. 7ackinnon $18E:', B, a senile man of feeble si"ht, endorsed a bill of e#change for C ?,333 thinking it was a guarantee. Held, there was no contract and no liabilit) was incurred b) the signature. But if 7 knew that the document whereon he ut his signature was a bill of e#change, he cannot a&oid it on the ground that he belie&ed that the bill was for C ?3 onl). 5n the former case, he was mistaken as to the nature or the latter case he was mistaken as to the contents of the document. 5nthe latter case he was mistaken as to the contents of the document nilateral 7istake as to the 5dentit) of the Person !ontracted
It is a rule of law that if a person intends to contract with #, cannot "ive himself an) right under it. Hence, when a contract is made in which ersonalities of the contracting arties are or ma) be of imortance, no other erson can interose and adot the contract. For e#amle, where 7 intends to contract onl) with A but enters into contract with B belie&ing him to be A, the contract is &itiated b) mistake as there is no consensus ad idem. Bistae as to the identity of the person with whom the contract is made will operate to nullify the contract only if $i' the identity is for material importance to the contracts5 and $ii' the mistae is nown to the other person, i.e., he nows that it is not intended that he should become a party to the contract.
In !und) v. %indsa) $1878', one lenarn posin" as a reputed trader laniron. placed an order for some "oods with 7is Lindsay and Co. The company, thou"ht that it is dealin" with laniron and supplied the "oods. lenarn sold the "oods to Cundy and did not pay to Fndsay. The latter sued Cundy. The Court held that there was nr contract between Lindsay and lenarn and therefore Cundy has no title to the "oods.
(iii) isrepresentation $*ection 18' 6he term ;misreresentation; is ordinaril) used to connote both ;innocent misreresentation; and ;dishonest misreresentation;. 7isreresentation ma). therefore, be either 'i 5nnocent misreresentation, or 'ii
5 nnocent isrepresentation If a person maes a representation believin" what he says is true he commits innocent misrepresentation. Thus, any false representation, which is made with an honest belief in its truth is innocent. The effect of innocent misrepresentation is that the party misled by it can avoid the contract, but cannot sue for dama"es in the normal circumstances. , ut in order to avoid a contract on t he "round of misrepresentation, it is necessary to prove that $i' $ii'
there was a representation or assertion, such assertion induced the party a""rieved to enter into the contract.
$iii' the assertion related to a matter of fact $ and not of law as i"norance of law is no e)cuse'. $iv' the statement was not a mere opinion or hearsay, or commendation $i.e, reasonable praise'. 4or e)ample an advertisement sayin", washes whiter( than the whitest(. $v'
the statement which has become or turned out to be untrue, was made with an honest belief in its truth.
)amages for Innocent isrepresentation =enerally the in
From a romoter or director who makes innocent misreresentation in acompany prospectus invitin" the public to subscribe for the shares in the company5
$ii' #"ainst an a"ent who commits a breach of warranty of authority $iii' 4rom a person who $at the Courts discretion' is estopped from denyin" a statement he has made where he made a positive statement intendin" that it should be relied upon and the innocent party did rely upon it and thereby suffered dama"es5 $iv' %e"li"ent representation made by one person to another between whom a confidential relationship, lie that of a solicitor and client e)ists.
(iv) (ilful isrepresentation or #raud )Section -! 4raud is an untrue statement made nowin"ly or without belief in its truth or reclessly, carelessly, whether it be true or false with the intent to deceive. The chief in"redients of a fraud are $i' $ii'
a false representation or assertion5 of fact $and not a mere opinion',
$iii' made with the intention that it should be acted upon, $iv' the representation must have actually induced the other party to enter into the contract and so deceived him, $v' the party deceived must thereby be damnified, for there is no fraud without dama"es, and $vi' the statement must have been made either with the nowled"e that it was false or without belief in its truth ;i reclessly without carin" whether it was true or false. It is immaterial whether the representation taes effect by false statement or with concealment. The party defrauded can avoid the contract and also claim dama"es. Bere silence as to facts liely to affect the willin"ness of a person to enter into a contract is not fraud, unless silence is in itself euivalent to speech, or where it is the duty of the person eepin" silent to spea as in the cases of contracts uberrimae fidei - $contracts reuirin" utmost "ood faith'. Contracts *berrimae #idei There are contracts in which the law imposes a special dl +ty to act with the utmost "ood faith Le., to disclose all material information. 4ailure to disclose such information will render the contract voidable at the option of the other party. Contracts uberrimae fidei are $a' !ontract of insurance of all kinds: The assured must disclose to the insurer all material facts and whatever he states must be correct and truthful. 'b !oman) rosectus:
Di""erence bet.een Fra/d and Innocent Misre$resentation
1.
4raud implies an intent to deceive, which is lacin" if it is innocent misrepresentation.
2. In case of misrepresentation and fraudulent silence, the defendant can tae a "ood plea that the plaintiff had the means of discoverin" the truth with ordinary dili"ence. This ar"ument is not available if there is fraud $*ection 1:-e)ception'. 0. Bisrepresentation may lead to avoidable of contract. In fraud, the plaintiff can claim dama"es as well. /. If there is fraud, it may lead to prosecution for an offence of cheatin" under the Indian Genal Code.
!v" Coercion Coercion as defined in *ection 1 means (the committin" or threatenin" to commit any act forbidden by the Indian Genal Code, or unlawful detainin" or threatenin" to detain, any property to the pre
!vi" *ndue Influence nder Section +9 of the 5ndian !ontract Act, +E, a contract is said to be roduced b) undue influence ;where the relations subsisting between the arties are such that one of the arties is in a osition to dominate the will of the other and uses that osition to obtain an unfair ad&antage o&er the other; The elements of undue influence are $i' a dominant position, and $ii' the use of it to obtain an unfair advanta"e. The words (unfair advanta"e( do not limit the
beneficiary5 solicitor and client. There is, however, no presumption of undue influence in the relation of creditor and debtor, husband and wife $unless the wife is a arda-nishin woman' and landlord and tenant. In these cases the party has to prove that undue influence has been e)ercised on him, there bein" no presumption as to e)istence of undue influence. $b' here he maes a contract with a person whose mental capacity is temporarily or permanently affected by reason of a"e, iilness or mental or bodily distress e."., doctor and patient. 5llustration
#, havin" advanced money to his son , durin" his minority, upon s comin" of a"e obtains, by misuse of parental influence a bond upon for a "reater amount than the sum due in respect of the advance. # employs undue influence. #, a man enfeebled by disease or a"e is induced by s influence over him as his medical attendant, to a"ree to pay an unreasonable sum for his professional services. 8 employs undue influence. A arent stands in a fiduciar) relation towards his child and an) transaction between them b) which an) benefit is rocured b) the arent to himself or to a third art), at the e#ense of the child will be &iewed with $ealous) b) !ourts of "4uit) and the burden will be on the arent or third-art) claiming the benefit of showing that the child in entering into the transaction had indeendent ad&ice, that he thoroughl) understood the nature of transaction and that he was remo&ed from all undue influence when the gift was made '7arim Bibi &. !assim "brahim '+? + 5.!. ++ '+? A.5.A. E.
here there is a presumption of undue influence, the presumption can be rebutted by showin" that $i' full disclosure of all material facts was made, $ii' the consideration was adeuate, and 'iii
the weaker art) was in receit of indeendent legal ad&ice.
Transaction with parda-nishin women The e)pression >arda-nishin>denotes complete seclusion. Thus, a woman who "oes to a Court and "ives evidence, who fi)es rents with tenants and collects rents, who communicates when necessary, in matters of business. with men other than members of her own family, could not be re"arded as a arda-nishin woman '5smail 7usafee v. Hafi8 Boo $1:9E' 00 Cal. L@ 770 and 00 I.#. 8E'. The principles to be applied to transactions with arda-nishin woman are founded on e4uit) and good conscience and accordin"ly a person who contracts with arda-nishin woman has to prove that no undue influence was used and that she had free and independent advice, fully understood the contents of the contract and e)ercised her free will. (The law throws around her a special cloa of protection( '/ali Baksh v. 1am *oal '++ L.@. /1 I.#. 20, 28-29, 0E #ll 81, 8:'. nconscionable transactions: #n unconscionable transaction is one which maes an e)orbitant profit of the others distress by a, person who is in a dominant
position. Berely the fact that the rate of interest is very hi"h in a money lendin" transaction shall not mae it unconscionable. ut if the rate of interest is very e)orbitant and the Court re"ards the transaction unconscionable, the burden of provin" that no undue influence was e)ercised lies on the creditor. It has been held that ur"ent need of money on the part of the borrower does not itself place the lender in a position to dominate his will within the meanin" of this *ection 'Sunder /oer v. 1ai Sham /rishen $1:97' 0/ Cal. 19, C.@. 0/ I.#. :'.
(vii) Legality of Object ;ne of the reuisites of a valid contract is that the ob
$i' forbidden by law5 or, $ii' it is. of such nature that if permitted it would defeat the provisions of law5 or $iii'
is fraudulent5 or
$iv'
involves or implies in
or $v' the Court re"ards it an immoral or opposed to public policy. In each of these cases the consideration or ob
llustration $i' &, J and enter into an a"reement for the division amon" them of "ains acuired by them by fraud. The a"reement is void as its ob
the India Genal Code. $vi' #n a"reement by the proprietors of a newspaper to indemnify the printers a"ainst claims arisin" from libels printed in the newspaper is void as it implies or involves ine"al effects alto"ether. #n ille"al contract too has no le"al effect as between the immediate parties to the contract, but has the further effect of taintin" the collateral contracts also with ille"ality. 4or instance # borrows from to @s. 1,999 for lendin" to C a minor. The contract between # and C is void, but can nevertheless recover the money from #, ;n the other hand, if # had borrowed @s. 1,000 from to buy a pistol to shoot C, the uestion whether can recover the money hin"es on whether was aware of the purpose for which money was borrowed. If had nowled"e of the ille"al purpose, he cannot recover. Therefore, it may be said that all ille"al a"reements are vM5Nid but all void a"reements are not necessarily ille"al. !onse4uence of 5llegal Agreements $i' $ii'
an ille"al a"reement is entirely void5 no action can be brou"ht by a party to an ille"al a"reement. The ma)im is >"# turi cause non-oritur actio> - from an evil cause, no action arises5
$iii' money paid or property transferred under an ille"al a"reement cannot be recovered. The ma)im is in arti delicto otier. est conditio defendeties
- In
cases of eual "uilt, more powerful is the condition of the defendant5 $iv' where an a"reement consist of two parts, one part le"al and other ille"al, and the le"al parts is separable from the ille"al one, then the Court will enforce the le"al one. If the le"al and the ille"al parts cannot be separated the whole a"reement is ille"al5 and $v' any a"reement which is collateral to an ille"al a"reement is also tainted with ille"ality and is treated as bein" ille"al, event thou"h it ,would have been lawful by itself 'Film Pratachand v. Firm /otri 1e. #I@ $1:7' *.C. 1220'.
Exception to General Rule of no Recovery of Money or Property
In the following cases, a party to an illegal agreement may sue to recover money paid or property transferred: (a) Where the transfer is not in pari delicto (equally guilty) with the detendant, Le. the transferee. For example, where A is induced to enter into an illegal a"reement by the fraud of , # may recover the money paid if he did not now that the contract was ille"al. $b' If the plaintiff can frame a cause of action entirely dependent of the contract. $c' here a substantial part of the ille"al transaction r.as not been carried out and the plaintiff is truly and "enuinely repentant. 'Bigos v. Bonstead $1:1', #ll 3.@. :2'. 5mmoral Agreements
#n a"reement is ille"al if its ob
Agreements Void as being Opposed to Public Policy
The head Opublic policyP covers a wide ran"e of t;f'ir5s. #"reements may offend public policy by tendin" to th prerine of public policy is not to be e)tended beyond the classes of cases already covered by it and no Court can invent a new head of public policy %ord Halsbur), 0anson v. Driefontien !onsolidated 7ines $1:92' #.C. /8/, /:1. It has been said by the House of Lords that public policy is always an unsafe and treacherous "round for le"al decisions. 3ven if it is possible for Courts to evolve a new head of public policy, it should be done under e)traordinary circumstances "ivin" rise to incontestable harm to the society. The followin" a"reement are void as bein" a"ainst public policy but they are not ille"al $a' Agreement in restrain of arental rights: #n a"reement by which a party deprives himself of the custody of his child is void. $b' Agreement in restraint of marriage: #n a"reement not to marry at all or not to marry any particular person or class of persons is &oid as it is in restraint of marria"e. $c' 7arriage brocage or brokerage Agreements: #n a"reement to procure marria"e for reward is &oid. here a purohit $priest' was promised @s. 299 in consideration of procurin" a wife for the defendant, the promise was held &oid as opposed to public policy, and the purohit could not recover the promise sum. $d' Agreements in restraint of ersonal freedom are &oid: here a man a"reed with his money lender not to chan"e his residence, or his employment or to part with any of his property or to incur any obli"ation on credit without the consent of the money lender, it was held that the a"reement was &oid. $e' Agreement in restraint of trade: #n a"reement in restraint of trade is one which sees to restrict a person from freely e)eidsin" his trade or profession.
A0REEMENTS IN RESTRAINT OF TRADE OID *ection 27 of the Indian Contract #ct states that every a"reement by which any
one is restrained from e)ercisin" a lawful profession, trade or business of any ind, is, to that e)tent, void. This *ection is not happily worded and has been criticised by many authors. It appears from the wordin" that every ind of restraint, whether total or partial falls within the prohibition of this *ection. In 3n"lish law the Courts have held that if a restraint is reasonable, it will be valid. Leadin" case on his point is (ordenfelt&. 7a#im (ordenfelt *uns !o., $18:/' #.C. 0. % was an inventor and a manufacturer of "uns and ammunition. He sold his world-wide business to B and promised not to manufacture "uns anywhere in the world for 2 years. The House of Lords held that the restraint was reasonable as it was (no more than is necessary for the protection of the company(, the contract was bindin". hether a restraint is reasonable or not depen6s upon the facts of each case. ;ur courts are not consistent on the point whether reasonable restraints are permitted or not. In 7adhub !hunder&. 1a!oomar'+ 1/ an". L.#. 7E. # paid #s. :99 to s worman. undertoo to stop his business in a particular locality in Calcutta. He did not eep his promise. #s suit for the sum was dismissed since the a"reement was void under *ection 27. The reasonableness or otherwise of the restraint was not discussed. However, if a restrictive meanin" is adopted, most of the ordinary mercantile a"reements may be hit. Thus, the Courts have held that if the restraint is one which is really necessary for the carryin" on business, th0 same is not prohibited. In 7acken8ie v. Sitarmiah, $18:1' 1 Bad. 7:, # a"reed to sell to all the salt he manufactured and a"reed to buy such salt. # further a"reed not to sell salt to third-parties. The Court held that the a"reement was valid.
;ther type of restrains are personal covenants between an employer and his employee whereby the latter a"rees not to compete with the former or serve with any of his competitions after employment. This issue came before the *upreme Court in (iran$an Shanker *olikari v. 6he !entur) Sinning and 7anufacturing !o. %td., #I@ 1:E7 *.C. 19:8. In this case % entered into a bond with the company to serve for a period of five years. In case % leaves his
the employer firstly, not to compete with latter after leavin" the
a' Sale of goodwill: here the seller of the "oodwill of a business undertaes not to compete with the purchaser of the "oodwill, the contract is enforceable provided the restraint appears to be reasonable as to territorial limits and the len"th of time. $b' Partner>s agreements: *ection 11 $2' of the Indian Gartnership #ct permits contracts between partners to provide that a partner shall not carry on any business other than that of the firm while he is a partner. $c'*ection 0E$2' and *ection / of the Indian Gartnership #ct provide that a partner may mae an a"reement with his partners that on ceasin" to be a partner he will not carry on any business similar to that of the firm within specified period or within specified limits. The a"reement shall be bindin" if the restrictions are reasonable. 6rade !ombinations: #n a"reement to ob
The literal meanin" of the word wa"er is a (bet(. a"ernin" a"reements are nothin" but ordinary bettin" a"reements. 4or e)ample, # and enter into an a"reement that if 3n"lands Cricet Team wins the test match, # will pay #s. 199 and if it loses will pay #s. 199 to #. This is a wa"erin" a"reement and nothin" can be recovered by winnin" party under the a"reement. The essence of "amin" and wa"erin" is that one party is to win and the other to lose upon a future event which at the time of the contract is of an uncertain naturethat is to say, if the event turns out one way # will lose5 but if it turns out the other way he will win '6hacker&. Hard), $1878' / ;; E8'. 'agering Agreements oid In India e)cept Bumbai, wa"erin" a"reements are void. In Bumbai, wa"erin"
a"reements have been declared ille"al by the #voidin" a"ers $#mendment' #ct, 18E. Therefore, in Bumbai a wa"erin" a"reement bein" ille"al, is void not only between the immediate parties, but taints and renders void all collat6ral a"reements to it.
Thus, # bets with and losses, applies to C for a loan, who pays in settlement of #s losses. C cannot recover from # because this is money paid (under( or (in respect of( a wa"erin" transaction which is ille"al in Bumbai. ut in respect of India such a transaction $i.e., bettin"' bein" only void, C could recover from #. ;f course, if # refused to pay the amount of the bet that he has lost, could not sue # anywhere. #"ain, where an a"ent bets on behalf of his principal and looses and pays over the money to the winner, he cannot recover the money from his principal, if the transactions too place in Bumbai, but elsewhere he could recover. ut if the a"ent wins, he must pay the winnin"s to the principal, as this money was received on behalf of the principal. *ometimes, commercial transactions assume the form of wa"erin" contracts. The sample test to find out whether a particular transaction is a wa"er or a "enuine commercial transaction is (here delivery of the "oods sold is intended to be "iven and taen, it is valid contract, but where only the differences are intended to be paid, it will be a wa"erin" c9ntract and unenfoceable. In a wa"erin" contract there must be mutuality in the sense that the "ain of one party should be loss to the other on the happenin" of an uncertain event which is the sub
- *ection 115
$b' #"reement made under a mistae of fact, material to the a"reement on thepart of the both the parties - *ection 29.
$c' #n a"reement of which the consideration or ob
- *ection 20.
$d' If any part of a sin"le consideration for one or more ob
$' #n a"reement to enter into an a"reement in the future. $l' #n a"reement to do an act impossible in itself - *ection E )I! 'hen contract becomes %oid #n a"reement not enforceable by law is void ab initio - *ection 2$"'. # contract which ceases to be enforceable by law becomes void when if ceases to be enforceable - *ection 29' # contract becomes void when, by reason of some event which the promisor could not prevent, the performance of the contract becomes impossible, e."., by destruction of the sub
becomes void when the option is e)ercised by him. RESTIT2TION hen a contract becomes void, it is not to be performed by either party. ut if any party has received any benefit under such a contract from the other party he must restore it or mae compensation for it to the other party. # a"rees to sell to after E months a certain uantity of "old and receives @s 99 as advance. *oon after the a "reement, private sales of "old are prohibited by law. The contract becomes void and # must return the sum of @s. 99 to . @estitution is also provided for by *ection E where an a"reement is disco&ered to be void. # pays @s. 99 in consideration of 8s promisin" to marry, C, #s dau"hter C is dead at the times of the promise. The a"reement is discovered to be void and 8 must pay bac @s. 99. ut there is no resolution where the parties are wholly incompetent to contract, e."., where one of the parties is a minor. The minor cannot be ased to restore the benefit, e."., a minor borrowed @s. 1,999 from 8, he cannot be ased to pay bac @s. 1,999 to 8 because the contractis void '7ohiri Bibi>s case. CONTIN0ENT CONTRACT $*ection 01' #s per *ection 01, a contin"ent contract is a contract to do or not to do somethin", if some event collateral to such contract, does or does not happen. 4or e)ample, # contracts to sell 8 19 bales of cotton for @s. 29,999, if the ship by which they are comin" returns safely. This is a contin"ent contract. I
Contract of insurance and contracts of I indemnity and "uarantee are
popular instances of contin"ent contracts.
R/les regarding contingent contracts The followin" rules are contained in *ection 02-0E $a' Contracts contin"ent upon the happenin" of a future uncertain event cannot be enforced by law unless and until that event has happened. If the event becomes impossible, the contract becomes void - *ection 02. $i' # maes a contract to buy 8s house if # survives C. This contract cannot be enforced by law unless and until C dies in #s lifetime. $ii' # contracts to, pay 8 a sum of money when 8 marries C, C dies without bein" married to 8. The contract becomes void. $b' Contracts contin"ent upon the non-happenin" of an uncertain future event can be enforced when the happenin" of that event becomes impossible and not before - *ection 00. # contracts to pay a certain sum of money if a certain ship does not return. The ship is sun. The contract can be enforced when the ship sins. $c' If a contract is contin"ent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anythin" which renders it impossible that he should so act within any definite time or otherwise than under further con"inencies - *ection 0/. # a"rees to pay 8 @s. 1,999 if 8 marries C. C marries . The marria"e of to C must now be considered impossible althou"h it is possible that 9 may die and C may afterwards marry . $d'Contracts contin"ent on the happenin" of an event within a fi)ed time become void if, at the e)piration of the time, such event has not happened, or if, before the time fi)ed, such event becomes impossible - *ection 0
# promise to pay a sum of money if a certain ship returns with in a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year. $e' Contracts contin"ent upon the non-happenin" of an event within a fi)ed time may be enforced by law when the time fi)ed has e)pired and such event has not happened or before the time fi)ed has e)pired, if it becomes certain that such event will not happen - *ection 0 # promises to pay a sum of money if a certain ship does not return within the year. The contract may be enforced if the ship does not return within the year or is burnt within the year. $f' Contin"ent a"reements to do or not to do anythin" if an impossible event happens, are void, whether the impossibility of the event is nown or not nown to the parties to the a"reement at the time when it is made
-
*ection
0E. # a"rees to pay @s. 1,000 to if two strai"ht lines should enclose a space. The a"reement is void.
CERTAIN
RELATIONS
RESEM3LIN0
THOSE
OF
CONTRACT
)42ASI
CONTRACTS! %ature of Duasi-Contracts # valid contract must contain certain essential elements, such as offer and acceptance, capacity to contract, consideration and free consent. ut sometimes the law implies a promise imposin" obli"ations on one party and conferrin" ri"ht in favour of the other even when there is no offer, no acceptance, no consensus ad idem, and in fact, there is neither a"reement nor promise. *uch cases are not contracts in the strict sense, but the Court reco"nises them as relations resemblin" those of contracts and enforces them as if they were contracts, hence the term uasi-contracts $Le., resemblin" a contract'. # uasi-contract rests on the euitable principle that a person shall not be allowed to enrich himself un
The followin" types of uasi-contracts have been dealt within the Indian Contract #ct $a' %ecessaries supplied to person incapable of contractin" or to anyone whom he is ille"ally bound to support - *ection E8. $b' *uit for money had and received
- *ection E: and 72.
$c'Guantum 7eruit $d' ;bli"ations of a finder of "oods - *ection 71. $e' ;bli"ation of person en
=overnment revenue due by , and # pays the amount to save his "oods from bein" sold, he is entitled to recover the amount from . $c' Boney obtained by defendant from third-parties. 4or e)ample, where an a"ent has obtained a secret commission or a fraudulent payment from a third-party, the principle can recover the amount from the a"ent. 4/ant/m Mer/it The e)pression ;Guantum 7eruit; literally means (as much as earned( or reasonable remuneration. It is used where a person claims reasonable remuneration for the services rendered by him when there was no e)press promise to pay the definite remuneration, Thus, the law implies reasonable compensation for the services rendered by a party if there are circumstances showin" that these are to be paid for. The "eneral rule is that where a party to a contract has not fully performed what the contract demands as a condition of payment, he cannot sue for payment for that which he has done. The contract has to be indivisible and the payment can be demanded only on the completion of the contract. ut where one party who has performed part of his contract is prevented by the other from completin" it, he may sue on a 4uantum meruit, for the value of what he has done. The claim on a 4uantum meruit arises when one party abandons the contract, or accepts the wor done by another under a void contract. 6he art) in default ma) also sue on a ;4uantum meruit; for what he has done if the contract is di&isible and the other art) has had the benefit of the art which has been erformed. But if the contract is not di&isible, the art) at fault cannot claim the &alue of what he has done Obligations o" "inder o" lost goods The liability of a finder of "oods belon"in" to someone else is that of a bailee. (This means that he must tae as much care of the "oods as a man of ordinary prudence would tae of his own "oods of the same ind. *o far as the real owner of the "oods is concerned, the finder is only a bailee and must not appropriate the "oods to his own use. If the owner is traced, he must return the "oods to him. The finder is entitled to "et the reward that may have been offered by the owner and also any e)penses he may have incurred in protectin" and preservin" the property. Obligation o" a $erson en5o&ing bene"it o" non(grat/ito/s act *ection 79 of the Indian Contract #ct provides that where a person lawfully does somethin" for another person or delivers anythin" to him without any intention of doin" so "ratuitously and the other person accepts and en
)ISC+ARG, OR T,RI-ATIO- O# CO-TRACTS
# contract is said to be dischar"ed or terminated when the ri"hts and obli"ations arisin" out of a contract are e)tin"uished. Contracts may be dischar"ed or terminated by any of the followin" modes $a' performance, Le., by fulfilment of the duties undertaen by parties or, by tender. $b' mutual consent or a"reement. $c' lapse of time5 $d' operation of law5 $e' impossibility of performance5 and $f' branch of contract. $a' #er"ormance o" Contracts $*ection 07' *ection 07 of the #ct provides that the parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed ? with-or e)cused under the provision of the Indian Contract #ct, or any other law. In . case of death of the promisor before performance, the representatives of the promisor are bound to perform the promise unless a
contrar) intention aears from the contract. 5llustration & promises to deliver a horse to J on a certain day on payment of @s 1,999. & dies before that day. &s representatives are bound to deliver the horse to J and J is bound is pay @s. 1,999 to &s representatives. Tender of %erformance $*ection 08' In cases of some contracts, it is sometimes sufficient if the promisor performs his side of the contract. Then,if the performance is re
dischar"ed f rom further liability and may sue for the breach of contract if he so wishes. This is called dischar"e by tender. To be valid, a tender must fulfil the followin" conditions $a' it must be unconditional5 $b' if must be made at a proper time and place5 $c' it must be made under circumstances enablin" the other party to ascertain that the party by whom it is made is able and willin" then and there to do the whole of what he is bound, to do by his promise. $d' if the tender relates to delivery of "oods, the promisee must have a reasonable opportunity of seein" that the thin" offered is the thin" which the promisor is bound by his promise to deliver $e' tender made to one of several
=enerally speain", a stran"er to contract cannot sue and the person who can demand performance is the party to whom the promise is made. ut an assi"nee of the ri"hts and benefits under a contract may demand performance by the promiser, in the same way as the assi"nor, $i.e the promisee' could have demanded. ,ffect of refusal of party to perform $holly *ection 0: provides that when a party to a contract has refused to perform or disabled himself from performin" his promise in its entirety the the promisee may put an end to the contract unless he had si"nified by words or conduct his acuiescence in its continuance. llustraton $a' &, a sin"er enters into a contract with J, the mana"er of a theatre to sin" at his theatres two ni"hts in every wee durin" the ne)t two months, and J en"a"ed to pay her @s. 199 for each ni"hts performance. ;n the si)th ni"ht & wilfully absents herself form the theatre. J is at liberty to put an end to the contract. . $b' If in the above illustration, with the assent of J, & sin"s on the seventh ni"ht, J is presumed to have si"nified his acuiescence in the continuance of the contract and cannot put an end to it5 but is entitled to compensation for the dama"es sustained by him throu"h &s failure to sin" on the si)th ni"ht.
/y $hom contract must be performed Fnder *ection /9 of the #ct, if it appears from the nature of the case that it was the intention of the parties to a contract that it should be performed by the promisor himself such promise must be performed by the promisor himself. In other cases the promisor or his representative may employ a competent person to perform it. llustration $a' & promises to pay @s. 1,999 to J. & may either personally pay the money to J or cause it to be paid to J by another. If & dies .before main" payment, his representatives must perform the promise or employ some proper person to do so. $b' & promises to paint a picture for J. & must personally perform the promise. )evolution of 0oint Liabilities Fnder *ection /2 of the Indian Contract #ct, where. two or more persons have made a
a
Assignment The promisee may assi"n ri"hts and benefits of contract and the assi"nee will be entitled to demand performance by the promisor. ut the assi"nment to be complete and effectual,must be made by an instrument in writin". #n obli"ation or liability under a contract cannot be assi"ned. This is technically called novation. $b' ischar"e by Butual #"reement or Consent$ *ection E2 ans E0' # contract may be dischar"ed by an a"reement of all parties to the contract,or by waiver or release by the partly entitled to perfromance. The method stipulated under *ection E2 and E0 for dischar"in" a contract by mutual consent are
%ovation- when a new contract is substituted for e)istin" contract either between the same parties or between different parties, the consideration mutually bein" the dischar"e of the old contract. #lteration- chan"e in one or more of the material terms of a contract. @escission- by a"reement between the parties at any time before it is dischar"ed by performance or in some other way. @emission- acceptance of a lesser sum than what was contracted for or a lesser fulfilment of the promise made. aiver- deliberate abandonment or "ivin" up of a ri"ht which a party is entitled to under a contract,where upon the other party to the contract is released from his obli"ation. ) C! Discharge b& La$se o" Time The Limitation #ct, in certain circumstance, affords a "ood defence to suits for breach of contract, and infact terminates the contract by deprivin" the party of his remedy to law. 4or e)ample, where a debtor has failed to repay the loan on the stipulated date the creditor must file the suit a"ainst him within three years of the default. If the limitation period of three years e)pires and he taes no action he will be barred from his remedy and the other party is dischar"ed of his liability to perform. )d! Discharge b& O$eration o" the La. ischar"e under this head may tae place as follows $a' B) merger: hen the parties embody the inferior contract in a superior contract. . b' B) the unauthorised alteration of items of a written document: here a party to a written contract maes any material alteration without nowled"e and consent of the other, the contract can be avoided by the other party. $c'y insol&enc): The Insolvency #ct provides for dischar"e of contracts under particular circumstances. 4or e)ample, where the Court passes an order dischar"in" the insolvent, this order e)onerates or dischar"es him from liabilities on all debts incurred previous to his ad
this connection, para 2 of *ection E provides that a contract to do an act, which after the contract is made becomes impossible or by reason of some event which the promisor could not prevent unlawful becomes void when the act become impossible or unlawful. If the impossibility is the not obvious and the promisor alone nows of the impossibility or ille"ally then e)istin" or the promisor mi"ht have nown as such after usin" reasonable dili"ence, such promisor is bound to compensate the promisee for any loss he may suffer throu"h the non-performance of the promise inspite of the a"reement bein" void ab-initio $section E, para 0'. In Sat)abarta *hose v. 7ugnuram #.I.@. 1:/ *.C. // the *upreme Court interpreted the term impossible appearin" in second para"raph of *ection E. The court observed that the word impossible has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the ob
performance of the promise is prevented or prohibited by a subseuent chan"e in the law. # enters into contract with for cuttin" trees. y a statutory provision cuttin" of trees is prohibited e)cept under a licence and the same is refused to #. The contract is dischar"ed. Cases in $hich there is no supervening impossibility In the followin" cases contracts are not dischar"ed on the "round of supervenin" impossibility- .
$a' Difficult) of erformance: The mere fact that performance is more difficult or e)pensive than the parties anticipated does not dischar"e the duty to perform. $b' !ommercial imossibilities do not dischar"e the contract. # contract does not become e)pectation of hi"her profits is not realised.
$c' *tries, locouts and civil disturbance lie riots do not terminate contracts unless there is a clause in the contract providin" for non-performance in such cases. *upervenin" Impossibility or ille"ality is nown as ;frustration; under 3n"lish Law. $! Discharge b& 3reach here the promisor neither performs his contract nor does he tender performance, or where the performance is defective, there is a breach of contract. The breach of contract may be $i' actual or, $ii' anticipatory. The actual breach may tae place either at the time the performance is due, or when actually performin" the contract. The anticipatory breach, Le., a breach before the time for the performance has arrived. This may also tae place in two ways, by the promisor doin" an act which maes the performance of his promise impossible or by the promisor in some other way showin" his intention not to perform it Anticipatory /reach of Contract reach of contract may occur, before the time for performance is due. This may happen where one of the parties definitely renounces the contract and shows his intention not to perform it or does some act which maes performance impossible. The other party, on such a breach bein" committed, has a ri"ht of action for dama"es. He may either sue for breach of contract immediately after repudiation or wait till the actual date when performance is due and then sue for breach. If the promisee adopts the latter course, i.e., waits till the date when performance is due he eeps the contract alive for the benefit of the promisor as well as for his own. He remains liable under it an enables the promisor not only to complete the contract in spite of previous repudiation, but also to avail himself of any e)cuse for non-performance which may have come into e)istence before the time fi)ed for performance.
In Hochester &.s De %a 6our $180' 3.@. :22, # hired in #pril to act as a courier commencin" employment from 1 st +une, but wrote to in Bay repudiatin" the a"reement, 8 sued # for breach of contract immediately after repudiation. # contended that there could not be breach of contract before +une 1. Held, 8 was immediately entitled to sue and need not wait till the 1 st +une, for his ri"ht of action to accrue. in A&er)>&. Bowden $18E' 11E 3.@. 1122, # hired s ship to carry a car"o from @ussia. Later on repudiated the contract. # delayed tain" action hopin" would chan"e his mind before the performance date. ar broe out between @ussia and ritain before the performance date, frustatin" the contract Held,. # lost his ri"ht to sue for dama"es by his delay. In Frost v. /night $1872' L.@. 7 3). 111, the law on the sub
(d) *ue for an in
fulfilment of the contract by the other party. *ection E/ deals with conseuences of rescission o6..voidable contracts, i.e., where there is flaw in the consent of one party to the contract. Fnder this *ection when a person at whose option a contract is voidable rescinds, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescindin" a voidable contract shall, if he has received any benefit thereunder, from another party to such contract, restore such benefit so far as may be, to the person from whom it was received.
)ii! Damages "or 3reach o" Contract Fnder *ection 70 of the Indian Contract #ct, when a contract has been broen, a party who suffers by such breach is entitled to receive, from the party who has broen the contract, compensation for any loss or dama"e, caused to him thereby, which naturall) arose in the usual course of things from such breach or which the arties knew, when the) made the contract to be likel) to result from the breach of it. *uch compensation is not to be "iven for any remote and indirect loss or dama"e sustained by reason of the breach. The foundation of the claim for dama"es rests in the celebrated case of Hadle) v. Ba#endale. The facts of the case were There was a breadown of a shaft in #s mill. He delivered the shaft to , a common carrier to be toen to a manufacturer to copy and mae a new one. # did not mae nown to that delay would result in loss of profits.. y some ne"lect on the part of , the deli&er) of the shaft was dela)ed in transit be)ond a reasonable time. #s a result the mill was idle for a lon"er period than it would otherwise have been, had there been no such delay. It was held, was not liable for the loss of profits durin" the period of delay as the circumstances communicated to # did not show that the delay in the delivery of the shaft would entail loss of profits to the mill. In the course of the
parties at the time they made the contract as the probable result of the breach of it. %ow, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants and thus nown to both the parties the dama"es resultin" from the breach of such a contract which they would reasonably contemplate, would be the amount of in
breach of contract. 4or, had the special circumstances been. nown, the parties mi"ht have specially provided for the breach Ef contract by special terms as to dama"es in that case and of this advanta"e it would be very un
In a breach of promise to marry, the amount of the dama"es will depend upon the e)tent of in
*pecific performance will not be ordered $a' where monetary compensation is an adeuate remedy5 $b' where the Court cannot supervise the e)ecution of the contract, e."., a buildin" contract5 $c'where the contract is for personal service5 and $d' where one of the parties is a minor. $iv' In5/nction #n in
Fnder *ection 12, the promisee, in a contract of indemnity, actin" within the
scope of his authority, is entitled to recover from the promisor $1' all dama"es which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies5 $2' all costs which he may be compelled to pay in any such suit if, in brin"in" or defendin" it, he did not contravene the orders of the promisor, and acted as if it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to brin" or defend the suit5 and $0' all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders. of the promisor, and was one which it would have been prudent for the promisee to mae in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit . ,
'
,
Meaning o" Contract 0/arantee
# contract of "uarantee is a contract to perform the promise, or dischar"e the liability of a third person in case of is default. The person who "ives the "uarantee is called the *urety, the person f,or whom the "uarantee is "iven is called the Grincipal ebtor5 and the person to whom the "uarantee is "iven is called the Creditor $*ection 12E'. # "uarantee may be either oral or written, althou"h in the 3n"lish law, it must be in writin". llustration # advances a loan of #s. ,999 to and C promises to # that if does not repay the loan, C will do so. This is a contract of "uarantee. Here is the principal debtor, # is the creditor and C is the surety or "uarantor. Lie a contract of indemnity, a "uarantee must also satisfy all the essential elements of a valid contract. There is, however, a special feature with re"ard to consideration in a contract of "uarantee. The consideration received by the principal debtor is . sufficient. for surety. *ection 127 provides that anythin" done or any promise made for the benefit of the principal debtor may be a, sufficient consideration to the surety for "ivin" the, "uarantee.
5llustration $i' reuests # to sell and deliver to him "oods on credit. # a"rees to do so, provided C will "uarantee the payment of the price of the "oods. C promises to "uarantee the payment in consideration of #s promise to deliver the "oods. This is sufficient consideration for Cs promise. $ii' # sells and delivers "oods to 8, C afterwards reuests # to forbear to sue for the debt for a year, and promises that if he does so. C will pay for them in default of payment by , # a"rees to forbear as reuested. This is sufficient consideration for Cs promise. Distinction bet.een Indemnit& and 0/arantee
# contract of indemnity differs from a contract of "uarantee in the followin" ways $a' In a contract of indemnity there are only two parties the indemni6ier and the indemnified. In a contract of "uarantee, these are three parties5 the surety, the principal debtor and the creditor. . $b' In a contract of indemnity, the liability of the indemnifier is primary. In a contract of "uarantee, the liability of the surety is secondary. The surety is liable only if the principal debtor maes a default, the primary liability bein" that of the principal debtor. $c' The indemnifier need not necessarily act at the reuest of the debtor5 the surety "ives "uarantee only at the reuest of the principal debtor. $d' In the case of a "uarantee there is an e)istin" debt or duty, the performance of which is "uaranteed by the surety, whereas in the case of indemnity the possibility of any loss happenin" is the only contin"ency a"ainst which the indemnifier undertaes to indemnify. $e' The surety, on payment of the debt when the principal debtor has failed to pay is entitled to proceed a"ainst the principal debtor in his own ri"ht, but the indemnifier cannot sue third-parties in his own name, unless there be assi"nment. He must sue in the name of the indemnified. E6tent o" S/ret&7s liabilit& The liability of the surety is co-e)tensive with that of the principal debtor unless the contract otherwise ro&ides $*ection 128'. # creditor is not found to proceed a"ainst the principal debtor. He can sue the surety without suein" the principal debtor. #s soon as the debtor has made default in payment of the debt, the surety is immediately liable. ut until default the creditor cannot call upon the surety to pay. In this sense, the nature of the suretys liability is secondary. 5llustration # "uarantees to 8 the payment of a bill e)chan"e by C, the acceptor. The bill is dishonoured by C. # is liable not only for the amount of the bill but also for any interest and char"es which may have become due on it. *ection 128 only e)plains the uantum of a suretys obli"ation when terms of the contract do not limit it. Conversely it doesnt follow that the surety can never be liable when the principal debtor cannot be held liable. Thus, a surety is not dischar"ed from liability by the mere fact that the contract between the principal debtor and creditor was voidable at the option of the former, and was avoided by the former. here the a"reement between the principal debtor and creditor is void as for e)ample in the case of minority of principal debtor, the surety is liable as a principal debtor5 for in such cases the contract of the so-called surety is not collateral, but a principal contract '/ashiba v. Shriat $18:/' 1: orn. E:7'
Kinds o" 0/arantees
# contract of "uarantee may be for an e)istin" debt, or for a future debt. It may be a specific "uarantee, or it may be continuin" "uarantee. # specific "uarantee is "iven for a sin"le debt and comes to an end when the debt "uaranteed has been paid. # continuin" "uarantee is one which e)tends to a series of transactions $*ection 12:'. It is a continuin" "uarantee where #, in consideration of s discountin", at #s reuest, bills of e)chan"e of C, "uarantees to for 12 months, the due payment of all such bills to the e)tent of @s. 19,999, or # becomes answerable to C for s purchases from C for E months to the e)tent of @s. 1,999. Revocation of Continuing Guarantee
# continuin" "uarantee is revoed in the followin" circumstances $a' y notice of re&ocation b) the suret) $*ection 109' The notice operates to revoe the suretys liability as re"ards future transactions. He continues to be liable for transactions entered into prior to the notice '@fford v. Da&ies $18E2' E L.T.*. 7:'. $b' y the death of the suret): The death of the surety operates, in the absence of contract '%lo)ds v. Harer $188' 1E Ch. . 2:9'. as a revocation of a continuin" "uarantee, so far as re"ards future transactions $*ection 101'. ut for all the transactions made before his death, the suretys estate will be liable. Rights o" S/ret& # surety has certain ri"hts a"ainst the creditor, $*ection 1/1' the principal debtor $*ections 1/9 and 1/' and the co-securities $*ections 1/E and 1/7' that are $a' Suret)>s rights against the creditor: Fnder *ection 1/1 a surety is entitled to the benefit of every security which the creditor has a"ainst the principal debtor at the time when the contract of suretyship is entered into whether the surety nows of the e)istence of such security or not5 and, if the creditor losses or, without the consent of the surety parts with such security, the surety is dischar"ed to the e)tent of the value of the security. $b' 1ights against the rincial debtor: #fter dischar"in" the debt, the surety steps into the shoes of the creditor or is subro"ated to all the ri"hts of the creditor a"ainst the principal debtor. He can then sue the principal debtor for the amount paid by him to the creditor on the debtors default5 he becomes a creditor of the principal debtor for what he has paid. In some circumstances, the surety may "et certain ri"hts even before payment. The surety has remedies a"ainst the principal debtor before
payment and after payment. In 7amta *hose v. nited 5ndustrial Bank (AIR 1:87 Cal. 189' where the principal debtor, after findin" that the debt became due, started disposin" of his properties to prevent sei!ure by surety, the Court "ranted an ins rights gains co-sureties: hen a surety has paid more than his share of debt to the creditor, he has a ri"ht of contribution from the co-securities who are eually bound to pay with him. #, and C are sureties to for the sum of @s. 0,999 lent to 3 who maes default in payment. #, and Care liable, as between themselves to pay @s. 1,999 each. If anyone of them has to pay more than @s. 1,999 he can claim contribution from the other two to reduce his payment to only @s. 1,999. If one of them becomes insolvent, the other two shall have to contribute the unpaid amount eually. Discharge o" S/ret& # surety may be dischar"ed from liability under the followin" circumstances $a' y notice of revocation in case of a continuin" "uarantee as re"ards future transaction $*ection 109.' $b' y the death of the surety as re"ards future transactions, in a continuin" "uarantee in the absence of a contract to the contrary $*ection 101'. $c' #ny variation in the terms of the contract between the creditor and the principal debtor, without the consent of the surety, dischar"es the surety as re"ards all transactions tain" place after the variation $*ection 100'. $d' # surety will be dischar"ed if the creditor releases the principal debtor, or acts or maes on omission which results in the dischar"e of the principal debtor $*ection 10/'. ut where the creditor fails to sue the principal debtor within the limitation period, the surety is not dischar"ed. $e' here the creditor, without the consent of the surety, maes an arran"ement with the principal debtor for composition, or promises it "ive him time or not to sue him, the surety will be dischar"ed $*ection 10'. $f' If the creditor does any act which is a"ainst the ri"hts of the surety, or omits to do an act which his duty to surety reuires him to do, and the eventual remedy of the surety himself a"ainst the principal debtor is hereby impaired,the surety is dischar"ed $*ection 10:'. $"' If the creditor loses or parts with any security which at the time of the contract the debtor had "iven in favour of the creditor, the surety is dischar"ed to the e)tent of the value of the security, unless the surety consented to the release of such security by creditor in favour
of the debtor. I6 is immaterial whether the surety was or is aware of such security or not $*ection 1/1'. 5llustrations $1' & "uarantees to J to the e)tent of @s. 19,999 that C shall pay all the bills that. shall draw upon him. draws upon C, C accepts the bill. # "ives notice of revocation, C dishonours the bill at maturity. # is liable uon his guarantee $*ection 109'. $2' # becomes surety to C for s conduct as a mana"er in Cs ban. #fterwards and C contract without #s consent that s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts. allows a customer to overdraw and the ban loses a sum of money. # is
dischar"ed from his suretyship by the variance made without his consent, and is not liable to mae "ood this loss $*ection 100'. $0' C contracts to lend @s. ,999 on 1 st Barch, # "uarantees repayment. C pays the money to on 1 st of +anuary. # is dischar"ed from his liability. # is dischar"ed from his liability, as the contract has been varied in as much as C mi"ht sue for the money before 1 st of Barch, $*ection 100'. $/' & contracts with to build a house for a fi)ed price within a stipulated time, J supplyin" the necessary timber. "uarantees &s performance. J omits to supply the timber. is dischar"ed from liability $*ection 10/'. $' contracts to build a ship for C for a "iven sum, to be paid by instalments as the wor reaches certain sta"es. # becomes surety to C for s due performance of the contract, without the nowled"e of #, C prepays to the last two instalments6S # is dischar"ed by this prepayment $*ection 10:'. CONTRACT OF 3AILMENT AND #LED0E )a! 3ailment # bailment is a transaction whereby one person delivers "oods to another person for some purpose, upon a contract that they are, when the purpose is accomplished to be returned or otherwise disposed of accordin" to the directions of the person deliverin" them $*ection 1/8'. The person who delivers the "oods is called the ailor and the person to whom they are delivered is called the ailee. The transaction, is called a ailment $*ection 1/8'. ailment is a &oluntar) deli&er) of goods for a temorar) urose on the understandin" that the) are to be returned in specie in the same of altered form. The ownership of the "oods remains with the bailor, the bailee "ettin" only the possession. elivery of "oods may be actual or constructive, e."., where the ey of a "od own is handed over to another person, it amounts to delivery of "oods in the "odown. Gratuitous /ailment
# "ratuitous bailment is one in which neither the bailor nor the bailee is entitled to any remuneration. *uch a bailment may be for the e)clusive benefit of the bailor, e."., when # leaves his do" with a nei"hbour to be looed after in #s absence on holiday. It may a"ain to be for e)clusive benefit of the bailee, e."., where you lend your boo to a friend or yours for a wee. In neither case any char"e is made. # "ratuitous bailment terminates by the death of either the bailor or the bailee $*ection 1E2'. Fnder *ection 1: the lender of a thin" for use may at any time reuire its return if the loan was "ratuitous, even thou"h he lent it for a specified time or purpose. ut if on the faith of such loan made for a specified time or purpose, the borrower has acted in such a manner that the return of the thin" lent before the time a"reed upon would cause him loss e)ceedin" the benefit actually derived by him from the loan,the lender must, if he compels the return, indemnify the borrower the amount in which the loss so occasioned e)ceeds the benefit so derived. /ailment3 for Reward
This is for the mutual benefit of both the bailor the bailee. 4or e)ample, # lets out a motor-car for hire to . # is the bailor and receives the hire char"es and is the bailee and "ets the use of the car. here, # hands over his "oods to , a carrier for carria"e at- a price. # is the bailor who en
Duties of Bailee The bailee owes the followin" duties in respect of the "oods bailed to him $a' The bailee must tae as much care of t he "oods bailed t6 him as a man of ordinary prudence would tae under similar circumstances of his own "oods of the same bul, uality and value as the "oods bailed $*ection 11'. If he taes this much care he will not be liable for any loss, destruction, or deterioration of the "oods bailed $*ection 12'. The degree of care re4uired from the bailee is the same whether the bailment is for reward of gratuitous. ;f course, the bailee may a"ree to tae special care of the "oods, e."., he may a"ree to eep the property safe from all perils and answers for accidents or thefts. ut even such a bailee will not be liable for loss happenin" by an act of *od or by public enemies. $b' The bailee is under a duty not to use the "oods in an unauthorised manner or for unauthorised purpose $*ection 10'. If the does so, the bailor can terminate the bailment, and claim dama"es for any loss or dama"e caused by the unauthorised used $*ection 1/'. $c' He must eep the "oods bail6d to him separate from his own "oods $*ections 1-17'. If the bailee without the consent of the bailor, mi)es the "oods of the bailor
with his own "oods, the bailor and the bailee shall have an interest, in production to their respective shares, in the mi)ture thus produced. If the bailee without the consent of the bailor, mi)es the "oods of the bailor with his own "oods, and the "oods can be separated or divided, the property in the "oods remains in the parties respectively5 but the bailee is bound to bear the e)penses of separation, and any dama"es arisin" from the mi)ture. If the bailee without the consent of the bailor mi)es, the "oods of the bailor with his own "oods, in such a manner that it is impossible to separate the "oods bailed from the other "oods and deliver them bac, the bailor is entitled to be compensated by the bailee for the loss of "oods. $d' He must not set up an adverse title to the "oods. $e' It is the duty of the bailee to return the "oods without demand on the of the time fi)ed or when the purpose is accomplished $*ection 1E9'. If he fails to return them, he shall be liable for any loss, destruction or deterioration of the "oods even without ne"li"ence on his part $*ection 1E1'
$f' In the absence of any contract to the contrary, the baliee must return $f' In the absence of any contract to the contrary, the baliee must return to the bailor any increase, accertion, or profits which have accrued from the "oods bailed5 for e)ample, when # leaves a cow in the custody of to be taen care of and the cow "ets a calf, is bound is deliver the cow as well as the calf to # $*ection 1E0'. )uties of bailor The bailor has the followin" duties $a' The bailor must disclose all the nown faults in the "oods5 and if he fails to do what, he will be liable for any dama"e resultin" directly from the faults $*ection 19'. 4or e)ample, # delivers to , a carrier, some e)plosive in a case, but does not warn . The case is handled without e)traordinary care necessary for such articles and e)plodes. # is liable for all the resultin" dama"e to men and other "oods. In the case of bailment for hire, a still "reater responsibility is placed on the bailor. He will be liable even if he did not now of the defects $*ection 19'. # hires a carria"e of . The carria"e is unsafe thou"h does not now this. # is in
$c'The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur because of the defective title of the bailor of the "oods bailed.$*ection 1E/'. /ailee&s %articular Lien $*ection 179' here the "oods are bailed for a particular purpose and the bailee in due performance of bailment, e)wands his sill and labour, he has in the absence of an a"reement of the contrary a lien on the "oods, Le., the bailee can retain the "oods until his char"es in respect of labour and sill used on the "oods are paid by the bailor. # "ives a piece of cloth to , a tailor, for main" it into a suit, promises to have the suit ready for delivery within a fortni"ht, has the suit ready for delivery. He has a ri"ht to retain the suit until he is paid his dues. The section e)presses the Common Law principle that if a man has an article delivered to him on the improvement of which he has to bestow trouble and e)penses, he has a ri"ht to detain it until his demand is paid. The ri"ht of lien arises only where labour and sill have been used so as to confer an additional value on the article.
%articular and General Lien Liens are of two inds Garticular lien and =eneral lien. # particular lien is one which is available only a"ainst that property of which the sill and labour have been e)ercised # bailees lien is a particular lien.
# general lien is a ri"ht to detain any property belon"in" to the other and in tt'U> possession of the person tryin" to e)ercise the lien in respect of any payment lawfully due to him. Thus, a "eneral lien is the ri"ht retain the property of another for a "eneral balance of accounts but a particular lien is a ri"ht to retain only for a char"e on account of labour employed or e)penses bestowed upon the identical property detained. The ri"ht of "eneral lien is e)pressly "iven by *ection 171 of the Indian Contract #ct to ban6rs, factors, warfin"ers, attorneys of Hi"h Court and policybroers, provided there is no a"reement to the contrary.
Termination of bailment
$*ection 1:'. # "ratuitous bailment terminates by the death of either the bailor or the bailee $*ection 1E2'.
#inder of Lost Goods The position of a finder of lost "oods is e)actly that of a bailee.. The ri"hts of a
finder are that he can sue the owner for any reward that mi"ht have been offered, . and may retain the "oods until he receives the reward and may sue for the reward. ut where the owner has offered no reward, the finder has only a particular lien and . can detain the "oods until he receives compensation for the troubles and e)penses incurred in preservin" the property for findin" out the true owner. ut he cannot file a suit for the recovery of the compensation V*ection 1E8Q. Thus, as a"ainst the true owner, the finder-of "oods in a public or uasi public place is only a bailee5 he eeps the article in trust for the real owner. #s a"ainst everyone else, the property in the "oods vests in the finder on his tain" possession of it
The finder has a ri"ht to sell the property $a' where the owner cannot with reasonable dili"ence be found, or $b' when found, he refuses to pay the lawful char"es of the finder and $i' if the thin" is in dan"er of perishin" or losin" "reater part of its value, or $ii' when the lawful char"es of the finder for the preservation of "oods and the findin" out of the owner amounts to two-thirds of the value of the thin" $*ection 169). Carrier as /ailee # common carrier undertaes to carry "oods of all persons who are willin" to pay his usual or reasonable rates. He further undertaes to carry them safely, and mae "ood all loses, unless they are caused by act of =od or public enemies. Carriers by land, includin" railways, and carriers by inland navi"ation, are common carriers. Carriers by *ea for hire are not common carriers and they can limit their liability. @ailways in India are now common carriers. Inn-eepers The liability of a hotel eeper is "overned by *ections 11. and 12 of the Contract #ct and is that of an ordinary bailee with re"ard to the property of the "uests.. C stayed in a room in a hotelThe hotel-eeper new that the room was in an insecure condition. hile C was dinin" in the dinin" room, some articles were stolen from his room. It was held that the hotel-eeper was liable as he should have taen reasonable steps to rectify the insecured condition of the rooms '0an R San v. !aneron $1:22' // #ll. 70'. )b! #ledge
Gled"e or pawn is a contract whereby an article is deposited with a lender of money or promisee as security for the repayment of a loan or performance of a romise. The bailor or depositor is called the (Gawnor( and the bailee or depositee the (Gawnee( $*ection 172'. *ince pled"e is a branch of bailment the pawness is bound to tae reasonable care of the "oods pled"ed with him. #ny ind of "oods, valuables, documents or securities may be pled"ed. The =overnment securities, e."., promissory notes must, however, be pled"ed by endorsement and delivery. The followin" are the essential in"redients of a pled"e $i' The property pled"ed should be delivered to the pawnee. $ii'elivery should be in pursuance of contract. $iii' elivery should be for the purpose of security. $iv' elivery should be upon a condition to return. Rights of the %a$nee %o property in "oods pawned passes to the pawnee, but the pawnee "ets a (special property to retain possession even a"ainst the true owner until the payment of the debt, interest on the debt, and any other e)pense incurred in respect of the possession or for preservation of the "oods( $*ection 170'. The pawnee must return the "oods to the pawnor on the tender of all that is due to him. The pawnee cannot confer a "ood title upon a bona fide purchaser for value.
*hould the pawnor mae a default in payment of the debt or performance of the promise, at the stipulated time, the pawnee may $i' file a suit for the recovery of the amount due to him while retainin" the "oods pled"ed as collateral security5 or $ii' sue for the sale of the "oods and the realisation of money due to him5 or $iii' himself sell the "oods pawned, after "ivin" reasonable notice to the pawnor, sue for the deficiency, if any, after the sale. If the sale is made in e)ecution of a decree, the pawnee may buy the "oods at the sale. ut he cannot sell them to himself in a sale made by himself under (Hi) above. If after sale of the "oods, there is surplus, the pawnee must pay it to the pawnor $*ection 176). Rights of %a$nor ;n default by pawnor to repay on the stipulated date, the pawnee may sell the "oods after "ivin" reasonable notice to the pawnor. If the pawnee maes an unauthorised sale without "ivin" notice to the pawnor, the pawnor has the followin" ri"hts $i' to file a suit for redemption of "oods by depositin" the money treatin" the sale as if it had never taen place5 or $ii' to as for dama"es on the "round of conversion.
