CONTRACTS

FIRST SEMESTER
INSTRUCTOR: PROF. NEHA SHARMA

Study Plan

1. UNIT: INTRODUCTION

General introduction and evolution of Contracts; English common law; Writs system;
Meanings and Essentials of a Contract; Types and formation.

2. UNIT: PROPOSAL AND ACCEPTANCE

Meaning of proposals; types; difference between Proposal and Invitation to Proposal;

Lapse of Proposal; Revocation of Proposal; Meaning of Acceptance; Mode of Acceptance;
Communication of Acceptance; Revocation of Acceptance; Battle of Forms; First Shot
Rule, Last Shot Rule, Comfort letter.

3. UNIT: COMPETENCE TO CONTRACT

Minority’s Agreement; Agreement by persons of Unsound, Persons disqualified by Law;

Doctrine of Restitution.

4. UNIT: CONSIDERATION

Meaning of Consideration; Types; Privity of Consideration; Difference between Privity of

Consideration and Privity of Contract; Nudum Pactum; Promissory Estoppel; Legality of
Objective and Consideration;

5. UNIT: CONSENT

Meaning of Consent and Free Consent; Vitiating factors and their effects; Coercion;
Undue Influence; Fraud; Misrepresentation; Mistake.

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 6. UNIT: STANDARD FORM OF CONTRACT AND CONTINGENT CONTRACT

Meaning of Contract; Unreasonable Terms; Fundamental Terms; Theory of

Fundamental breach; Contra Proferentem (protective device); Contingent Contract-
meaning and types.

7. UNIT: VALID, VOID, UNLAWFUL AND ILLEGAL AGREEMENTS

Agreement in restraint of marriage; Agreement in restraint of trade; Agreement in

restraint of Legal Proceedings; Uncertain Agreements; Wager.

8. UNIT: RELATIONS RESEMBLING A CONTRACT

Theory of Unjust Enrichment (theory); Supply of Necessaries; Payment by Interested

Person; Liability to pay for Non-Gratuitous Acts.

9. E-CONTRACT, GOVERNMENT CONTRACT, CONTRACT DRAFTING

Meaning of e-Contract; Types and essentials; Government Contracts; Types of

Government Contract; Introduction to Contract drafting.

10. PERFORMANCE, DISCHARGE, BREACH AND REMEDIES

Mode of discharge of Contract; Doctrine of Frustration; Breach of Contract; Remedies in

the event of Breach; Specific performance; Nature and kind of Damages; Measure of
Damages; Mitigation of Damages; Remoteness of Damages; Difference between Damage
and Damages; Procedural law related to Contract enforcement.

General Introduction and Evolution of Contract

Contract is an agreement enforceable by law. Section 2 (h) and Section 10 provides the basic
requirements of a validly binding agreement.

Proposal is a starting point in formation of a contract. The person who makes a proposal is
called a promiser. The person to whom a proposal is made is called promisee.

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As defined in the Indian Contract Act, it is an expression of willingness to do or abstain from
doing any act with a view to obtain the assent of offeree to the proposed Act.

The process of making a proposal is complete by communicating it.

It can be by words, oral or written, or by conduct. For example, a bid at an auction is an implied
offer from the side of the bidder.

Section 4 provides the rule relating to communication, that is, communication of your proposal
is complete when it comes to the knowledge of the person to whom it is made.

An offer cannot be accepted unless it comes within the knowledge of that person.

Case: Lalman Shukla V. Gauri Dutt

In this case the defendant's nephew was absconded. He sent his servant to search for the boy
after the servant left, the defendant issued some pamphlets and offered to pay Rs.500 to
anybody who discovers the boy. The servant came to know about the offer after he had already
discovered his nephew. Even then, he claimed the reward under the pamphlet. His actions failed
on the ground that in order to constitute the contract, there must be an acceptance of an offer,
and there can be no acceptance unless there is knowledge of the offer.

Evolution

1. Specific Offers: It is one which is made to a specific person or group of persons. It can be
accepted by that specific person or group of persons.
2. General Offer: It is made to the public in general, and it can be accepted by anyone who
fulfills terms and conditions of the offer. It is not necessary that the offer must be made
to a certain person, but a contract cannot arise until the offer is accepted by a certain
person.

Case: Carlill V. Carbolic Smoke Balls Company

In this case, the company offered to pay a certain amount to anyone who suffers from influenza
even after using their product according to the directions. They also deposited a certain amount

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in the bank to show their sincerity. The plaintiff used the product, followed all directions, and
suffered from influenza. She claimed the amount which was allowed by the court. It was
opposed by the defendant company on the ground that they did not have any intention to create
legal obligation and the advertisement was mere puff. They also contended That there was no
acceptance and the plaintiff did not communicate intention to accept. It was held that the
statement was not mere puff and also when an offer is made to the world, it becomes a contract
with anyone who comes forward and performs the conditions. There was no need to formally
communicate the acceptance.

● Proposal must be certain to the extent that by mere acceptance, it will lead to a
concluded contract.
● If certain terms are not mentioned, but may be determined or supplied by interpreting
the agreement with the help of course of dealings between the parties, then such a
proposal will be sufficiently certain to conclude a contract.
● It must be given with an intention to create a legally binding obligation.

Proposal and Invitation to Treat (Invitation of Offer)

● The difference between offer and invitation of offer depends upon the intention of the
person making it.
● Proposal is an expression of final willingness by the offeror to be bound by his offer.
When a person without expressing his final willingness gives statements showing his
willingness to negotiate, is an invitation of offer. For example: goods displayed in the
supermarket.

Case: Gibson V. Manchester City Council

It was held that there is no offer where the owner of the house states the price at which he is
prepared to sell, in response to the enquiry made by the interested buyer.

Case: Surendra Nath Roy V. Kedar Nath Bose (Calcutta High Court)

A letter communicating willingness to sell at a particular price, in response to an enquiry of

whether the property has been on sale or not, was held to be an offer.

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Case: Ghaziabad Development Authority V. Union of India

The offer of a scheme by the development authority was considered as an invitation.

Case: Bank of India V. O.P. Swarnkar (read full case)

A Voluntary Retirement Scheme was present.

Case: Macpherson V. Apanna

In this case, plaintiffs offered to buy a logue owned by the defendant for Rs. 6,000. He wrote to
the defendant’s agent asking whether the offer had been accepted and he’s ready to pay any
higher price. The agent replied, “We will not accept less than Rs.10,000”. It was held that the
defendant will not make any offer/counter offer, but he was just inviting an offer. There was no
assent given to the plaintiff’s offer to buy at Rs. 10,000, and therefore, no concluded contract.

Case: Harvey V. Facie:

In this case, the plaintiff telegraphed the defendant and asked, “will you sell your property?
Telegraph the lowest price.” The defendant replied, “The lowest price is 900 pounds.” To this,
the plaintiff immediately sent a telegram stating that we agreed to buy it for 900 pounds.
Defendant refused to sell plaintiff contended that by quoting lowest price in response to inquiry,
the defendants made an offer which was accepted by us and therefore, there was a contract. It
was held that the defendants responded to the second question and reserved answer relating to
the first one. There was no willingness shown and therefore, no contract formed.

Acceptance

● Section 2(b) defines acceptance as an accent to the proposal by the person to whom it has
been made.
● The accent may be made by words or by conduct.
● A proposal, when accepted, becomes a promise.
● According to section 2(b), the accent must be signified and it may be signified by any act
or omission, by which the party intends to communicate.

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 ● An acceptance must be communicated to the offeror. This is indicated by the word
‘signifies’ in Section 2(b). A mere mental determination to accept the offer is not
sufficient. It must be accompanied by some overt act, which shows the acceptance.

Case: Plato Industries Lmt. V. State of H. P.:

In this case, a buyer in an auction was held liable to pay the taxes, where the advertisement for
auction and the acceptance of bid stated that the buyer will bear all statutory liabilities.

Case: Hindustan Cooperative Insurance Society V. Shyam Sundar:

In this case, after an oral understanding to insure, and after completion of the medical
examination of the proposal, the company informed him that if he will submit proposal form
along with the half yearly premium, his proposal will be deemed to be accepted. The company
encashed the cheque but did not reply to him showing acceptance of the proposal. It was held
that encashing the cheque by the company amounted to acceptance of the proposal.

Case: Municipal Committee Harda V. Harda Electric Supply Company

There was an acceptance of a proposal by a company, subject to ratification by the managing

director, who was away at that point of time, which became a concluded contract, when the
company wrote that the managing director would be signing it, and we can proceed with it.
There was no requirement of the compliance of the formal document.

Case: Brogden V. Metropolitan Railway Company

Brogdan was supplying coal to the company without any formal agreement. The agents of both
met, drafted a formal agreement and sent to Brogden to fill some blanks in the document.
Brogden accordingly did so and returned it to the agent of the company. He kept it in the drawer
and it remained there without final approval, having been signified. The parties kept on
supplying and receiving payments on new terms. Later on, Brogden refused to be bound by the
new agreement. It was held that the conduct of the company’s agent in keeping the document in
the drawer showed his mental resolve, which was not expressed. However, subsequent conduct
of compliance of new terms was evidence of the fact that final acceptance was given by conduct.

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Mode of Communication and the Rules relating to it

● Section 7 of the Act provides that acceptance must be absolute and unqualified, which
means that the acceptance must not be modified in any manner whatsoever. If there is a
modification, addition, alteration, etc. in the acceptance, then it will lead to a counter
offer, and there will be no concluded contract. This rule is based on the mirror image
rule, which provides that the acceptance must be a mirror image of the offer. Any
attempt to modify the acceptance will create a counter offer, which will lead to rejection
of the original offer.
● Section 7 also provides that the acceptance must be made in some usual and reasonable
manner, unless the proposal prescribes a manner. If there is a departure from that
manner, then it will not itself invalidate the acceptance. This section casts duty upon the
proposer to reject the acceptance with a reasonable time, and if he fails to do so, the
contract is concluded, and it will be presumed that he accepts the acceptance.

Case: Hyde V. Wrench (related to counter offer)

In this case, Wrench offered to sell his farm to Hyde for one thousand pounds, but Hyde refused
to accept this offer. Later on, Wrench wrote to Hyde’s agent, offering to sell the farm for one
thousand pounds, stating that this is his final offer, and he would not alter it. In response to this,
Hyde offered to buy the farm for 950 pounds. But Wrench refused to accept and informed Hyde
about it. Thereafter, Hyde agreed to buy the farm for one thousand pounds, but Wrench refused
to sell. Hyde sued Wrench for the breach of contract. It was held that there was no valid and
binding agreement between the parties for purchase of the farm. The plaintiff made an offer to
purchase the property for 950 pounds, which amounted to the rejection of the original offer.

● Where the acceptance is not qualified, the contract is completed via acceptance.

Case: Amrit Banaspati Company ltd. V. UOI (class presentation)

Case: Bhagwati Prasad Pavan Kumar V. UOI (class presentation)

Case: Jagdeesh Prakash Keshwani V. Fertilizer’s Corporation of India

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In this case, the plaintiff tendered to buy from the defendant a certain amount of goods and
deposited Rs. 5,000 as security. The deposit of security money led to the concluded contract.

Case: Delhi Development Authority V. Griha Sthapna Cooperative Housing Society

In this case, the society was bound to pay enhanced price for the land allotted to it by the
development authority because it had accepted the allotment on this term in the offer made
earlier.

● A valid acceptance of proposal must be absolute and unconditional and it must extend to
all terms of proposal.

Case: Rickmers V. Indian Oil Corporation

In thai case, a letter of intent was issued on the terms that the contractor would sign the
document and would furnish irrevocable bank guarantee. The contractor failed to furnish it. It
was held that the two conditions were a condition precedent of the formation of contract. And
revocation of letter of intent was held to be valid.

● An acceptance with variation in terms of proposal is a counter offer and it must be

accepted by the original offerer to form a binding agreement.

Case: Butler Machine Tools Company Ltd. V. Ex-cell-o corporation Ltd.

In this case, there was an offer to sell a machine and the offer contained a price variation clause,
according to which, the goods were supposed to be charged at the price applicable at the time of
delivery. The offeree placed an order in his own form, which had no price variation clause and
had a tear of acknowledgement slip. The proposer signed the acknowledgement slip and
returned it to the offeree. The machine was ready for delivery in the month of September, but
the buyer could not take delivery till November. Seller invoked the price variation clause. The
court did not allow it and it was held that the buyer’s acceptance was a counter offer and the
seller accepted it without a price variation clause.

(UP Nirman Nigam Case)

Postal Communication

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 ● The rule relating to postal communication is different from that of instant
communication.
● The first case relating to the principle of postal communication is Adams V. Lindsell. In
this case, the defendant sent a letter in which he offered to sell goods to the plaintiff and
the letter was posted on 2nd September. The letter reached the offeree on 5th September
and in the evening, the offeree posted a letter accepting the offer. The proposer received
the letter of acceptance on 9th, the acceptor he waited till 8th, but on 8th on september,
he sold goods to the 3rd party. The court sued the defender (offerer) for the breach of
contract, but it was held that a complete contract arises on the date when the letter of
acceptance is posted, and there was completion of the contract and both the parties were
bound.
● Indian law adopted the principle enunciated in Adams V. Lindsell but with a slight
modification under Section 4, which provides that when the letter of acceptance is
posted, and it is out of the power of the acceptor, the proposer becomes bound and the
acceptor is bound when the letter is received by the proposer. The acceptor can revoke
his acceptance before the letter of acceptance reaches the offerer.

Instantaneous Mode of Communication

Case: Entores V. Miles Far East Corporation

In this case, the communication was made from London to Holland and it was accepted duly by
mode of Telex. The only question was whether the contract was concluded in Holland or
London. It was held that Telex is an instantaneous mode of communication and the rule for such
communication is different from postal. The contract is only complete when the acceptance is
received by the offeror and the contract is made at where the acceptance is received.

Case: Bhagwan Kedia V. Girdhari Lal

In this case, the plaintiff made an offer from Ahmedabad to the defendants at Khamgaon to
purchase certain goods. The defendants accepted the offer. The question was whether the
conversation resulted in a contract at Khamgaon or Ahmedabad. The conversation was

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telephonic and most of the judges in this case preferred to follow Entores Rule and the contract
was deemed to be completed when the acceptance of the offer was received by the offeror.

Case: Badri Prasad V. State of MP

The appellants in this case entered into a contract with respect to certain forest land under
which he was allowed to cut trees from that land and take them away. Later on, after the passing
of abolition of proprietary rights (estate, mahal and alienated lands) Act, 1950. A notification
was issued vesting the said land in the state. And therefore, the appellant was prohibited from
cutting the trees under the previous contract. He approached state authorities and after some
negotiations, a letter was written by the state to the appellant that the appellant would be
allowed to cut the trees if he gives up his claim of Rs.17,000 and deposits additional Rs.17,000
with the state. The appellant replied to the letter in which he expressed his willingness to pay the
additional amount but he reserved his right to claim Rs.17,000. The state government rejected
the appellant's right to cut the trees. Aggrieved by this, the appellant filed a suit for the specific
performance of the contract on the following grounds:

1. The trees did not vest in the state.

2. Even if they vested, the standing timber which was sold to him did not vest in the state.
3. In any event, a new contract was concluded when the letter of acceptance was sent by the
appellant and therefore, he was entitled to the specific performance.

It was held that the trees vested in the state under the act and under the contract, the appellant
had not become the owner of the trees. The property could pass only to the appellant when the
trees were cut and before that, they were state’s property. The goods had to be ascertained
before passing of property and even if we consider that the letter of state was an offer, there was
no unconditional acceptance of that offer because the appellant reserved his right to claim the
refund. And therefore, there was no concluded contract.

Case: Uttar Pradesh Rajkiya Nirman Nigam Ltd. V. Indure Pvt. Ltd.

In this case, Nigam purchased tender documents for some work. Indure approached Nigam for
joint participation. A draft agreement was prepared, imposing joint responsibility, in completion
of the work. Indure made material changes in the draft, placing unilateral responsibility on
Nigam. Nigam did not communicate further, but submitted the tender and later withdrew it.
Indure brought an action for breach. It was held that the conduct of Nigam of submitting

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unilateral tender did not amount to acceptance of the counter offer of Indure and there was no
concluded contract.

Lapse of Offer / Revocation

● Acceptance should be made before offer lapses and it lapses in circumstances provided in
Section 6 following these circumstances:
1. By communication of notice of revocation.
2. By lapse of time prescribed for acceptance or lapse of reasonable time.
3. By failure of the acceptor to fulfill condition precedent.
4. By death or insanity of the proposer, if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.

Refer to Section 4 and 5.

● Where an offeror gives the offeree an option to accept within a fixed period, he may
withdraw it even before the expiry of that period.

Case: Alfred V. Muthunaya Shetty

In this case, the defendant left an offer open to sell certain goods at the plaintiff's office, in which
he allowed 8 days’ time to give an answer. On the 4th day, the defendant revoked his proposal
and the plaintiff accepted it on the 5th day. It was held that acceptance was ineffective. The court
said that it was clear that in absence of consideration for a promise to keep the offer open for a
certain time, was nudum pactum and non-enforceable.

Case: MountFord V. Scott

It was held that where the agreement to keep the offer open for a certain period of time is for
some consideration, the offeror cannot cancel it before expiry of that time.

Case: Bank of India V. O.P. Swarnkar

The employees of the bank were given the right to apply for BRS. The retirement was to take
effect only after the request had been accepted. The scheme was an invitation to offer.
Employee’s application was an offer. He could withdraw it before acceptance. A term in the

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scheme which prevented the employee from withdrawing the request was held to be not binding
because of absence of any consideration.

Case: Amarjeet Singh V. Zonal Manager, FCI

In this case, the tender was not accepted even within the extended time and therefore the
contract was not concluded.

● In such cases, it is enough that the acceptance is posted before the stipulated time, even
if it reaches the offeror after the stipulated date. The contract will be concluded. The
acceptance is ascertained from the date, the acceptance is ascertained from the date it is
posted.

Condition Precedent

Case: State of West Bengal V. Mahendra Dasposted

In this case, a lease was offered with the deposition of a sum within a certain time. The intended
lessee did not deposit for 3 years. The offer was canceled due to non-compliance with the
condition precedent.

Battle of Forms

● It's very common in commercial transactions that both the offeror while making the offer
and the offeree while accepting seems to contract on their own terms/standard formats.
● If we apply the general rule of offer and acceptance strictly, there would be either no
contract, or a contract on the basis of acceptance of the last shot fired.

Case: Butler Machine Tools Company Ltd. V. Ex-cell-o corporation Ltd. (refer)

Case: British Road Services Ltd. V. Arthur

In this case, the plaintiff delivered a consignment of whiskey to the defendant for storage and
the delivery note incorporated the plaintiff’s condition of carriage. The defendants stamped it
with a note that it was received under the defendant's condition. It was held that the letter

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amounted to a counter offer. The latter amounted to a counter offer which the plaintiff accepted
by handing over the consignment.. Therefore the contract incorporated the defendant’s
condition. This is later called the last shot doctrine, which means the contract finalizes on the
terms of the party who fired the last shot, in the final document, in the series of correspondence.

● The other doctrine is knock out doctrine, where a contract is concluded on the basis of
agreed terms and of any standard terms which are common in substance. Ex: UCC (find
more about it). UCC also makes an exception to the mirror image rule in contract for sale
of goods made by exchanging forms, where the forms are sent by buyer and seller and
the seller does not agree to it in totality. The acceptance is generally affected and the
contract is formed if it does not materially alter the terms.
● Refer Article 222 of Unidroit Principle. (H.W.)

Case: Central England Water Transport Corporation V. V. N. Ganguli (prepare for next week)

Standard Form of Contract

● Such contracts are also called compulsory contracts or contract of adhesion for the
reason that one party has very less or no bargaining power and due to which such person
is in position to either take it or leave it.
● Such agreements are not illegal per se. But sometimes they may have adverse effects
upon the weaker party because they give opportunity to the stronger party to exploit the
weaker party by imposing certain terms upon which they do not bargain. Such contracts
are enforceable. But with the passage of time, the judiciary developed certain protective
devices to protect the weaker party from adverse consequences.

Case: L’Estrange V. Graucob

In this case, the buyer signed an agreement without reading it and bought a machine. The
agreement excluded liability for all kinds of defects in the machine. It was found to be totally
defective. The supplier had made no effort to bring the exemption clause in the notice of the
buyer. Even then the court held that where a document containing contractual terms is signed,
then in absence of fraud or misrepresentation, the party signing it shall be bound, whether he
has read it or not.

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Protective Devices: Reasonable notice

● It is the duty of a person delivering a document to give reasonable notice of terms

to the offeree. If such notice is not given, the offeree shall not be bound by such
terms.

Case: Henderson V. Stevenson

In this case, the plaintiff got a steamer ticket. On the face of it, the words mentioned were Dublin
to White Heaven, and on the back, there were certain terms and conditions that were printed.
One of them was an exclusion clause, excluding the liability of the company for loss, injury or
delay to the passenger or his luggage. The plaintiff did not see the back, nor any sign or
indication was given. The plaintiff’s luggage was lost and he was held entitled for recovery of the
loss. The court said that the company must have indicated on the front that there are terms and
conditions mentioned on the back.

● The notice must be given before or at the time of making of contract. A subsequent notice
amounts to modification of original offer and shall not bind the other party, unless he
gives assent to it.

Case: Olley V. Marlborough

In this case, the party hired a room in the hotel, paid in advance. When they went to occupy the
room, there was a notice on the wall that the proprietors will not be responsible for the articles
lost or stolen, owing to the negligence of the hotel staff. The defendants were held liable because
the notice was not part of agreement.

Theory of Fundamental Breach

Every contract has a core or fundamental obligation, which is the duty of the party to perform.
And if one party fails to perform it, then it will constitute fundamental breach.

Case: Collins V. J. Davey

In this case, the plaintiff entrusted his car with the defendant. One of the conditions of the
contract exempted the defendant from loss or misdelivery. The plaintiff’s former servant

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persuaded the defendant to deliver the car to him, telling him that he is authorized by the
plaintiff . The defendant was held not liable for the loss on the ground that he made an innocent
mistake and if he had delivered the car to a complete stranger, there would have been a
fundamental breach.

Case: Alexander V. Railway Executive Case

The plaintiff received the ticket containing conditions including an exemption clause which
completely excluded the defendants from their liability for misdelivery or loss of any article,
exceeding by pounds by value, unless some special charges are paid for the sale. He deposited
his luggage at the parcel office. The defendants allowed the plaintiff's friend a luggage and in an
action by the plaintiff, the defendants relied upon the above said exemption clause. It was held
that the essential part of the defendant's duty was to take care of deposited goods and they have
committed fundamental breach of the contract in allowing a person who was not authorized to
take the goods and therefore, they were not allowed to rely upon the exemption clause to escape
from the liability.

Case: LIC of India V. Consumer Research Center and Ots.

The supreme court said that many authorities in the field of insurance have a public duty to
evolve insurance policies with fair and just terms and rendered accessible to all segments of the
society. Unreasonable terms breaching such duty are not enforceable.

Case: S. Kandia Insurance Company Ltd. V. Kokila Ben

It was held that exclusion of liability clauses should not conflict with the main purpose of the
provision enacted for the protection of victims. Exclusion clauses should not cause more distress
to the affected party, instead of giving protection.

Case: B. V. Nagaraju V. Oriental Insurance Company Ltd.

In this case, the SC dealt with the question as to whether liability could be avoided on
the ground of breach of insurance policy. Being so fundamental in nature, it was held
that every contract has core, which is a fundamental obligation and he will be guilty of
breach, whether or not any exempting clause has been inserted in the contract to

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protect. In this case also, the company claimed exemption of liability and the breach was
held to be fundamental in nature.

Contra Proferentem

The doctrine of contra proferentem is applied where the contract is ambiguous. The
doctrine derives its essence from insurance law and applies in a situation when a
provision in a contract can be interpreted in more than one way. In that case, the court
will prefer interpretation, which is more favorable to the party who has not drafted the
agreement. In other words, the judge will be more oriented towards the interpretation
which goes against the party who has inserted the ambiguous or disputed clause.

The justification for this doctrine is that many-a-times, the parties to contract do not
stand at the same level and one party dominates the other.

The precondition for applicability of this rule is the existence of ambiguity.

In case of Horne Coupar V. Vellett

The court held that ambiguity in the contract is a prerequisite of application of this rule.
Once the ambiguity is established, the rule is straightforward in its application.

In Bank of India V. K. Mohandas, 2009, SC,

It was held that the bank convoluted the terms in a contractual scheme and if they are
uncleared, they shall be interpreted against the party who has drafted those terms.

Case: General Assurance Society Ltd. V. Chandumal Jain (read it)

It was held that there is no difference between a contract of insurance and any other
contract, except that in a contract of insurance, there is a requirement of utmost good
faith and the contract is likely to be construed contra proferentem, that is against the

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company. It is the duty of the court to interpret the words in which the contract is
expressed by the parties and not to make a new contract, however reasonable.

Consideration

Any act or abstinence which is done or undertaken to be done at the desire of the
promisor is a sufficient consideration.

Consideration is the price of promise or a return or something of value received by the

promisee as inducement of the promise.

[Unilateral promise cannot be directly defined, but the definition can be built up
through referring to Section 2(d), Section 8 and Section 2(e)]

Promissory Estoppel: It refers to the condition wherein an offer cannot be revoked, once
the promisee has acted upon it. It saves us from the long chain of offering and revoking
upon different terms.

Privity of Contract

● The doctrine of privity of contract provides that a contract cannot confer right or
impose obligations upon anyone who is not a party to the contract, which simply
means that no third party can enforce the contract and be sued under it.
● Privity of consideration is the rule which provides that the consideration can be
furnished by the promisee only. In India, this rule does not apply (Section 2 (d)).

Privity of contract can be explained with the help of a case Dutton V. Poole. In this case,
a girl was about to get married. Her father decided to give a marriage portion to her and
for that, he intended to sell certain property. When her brother came to know about it,
he agreed with her father to provide the marriage portion to the girl, if her father
abstains from selling the property. Father accordingly did so. But the son did not give
the promised amount. The girl sued her brother for the above said amount and the claim
was allowed. In this case, the girl was not party to the agreement, but she was

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beneficiary and therefore, her claim was allowed and the rule of privity of contract was
not applied.

Case: Tweddle V. Atkinson, 1861

In this case, the plaintiff was supposed to be married to the defendant’s daughter.
Plaintiff’s father and defendant agreed that each would pay a certain amount to the
plaintiff, in consideration of this marriage. The defendant failed to do so and the
plaintiff sued. The court said that it’s an established principle that no stranger to the
contract can take advantage of a contract even if it is made for his benefit. This case laid
down the foundation of the doctrine of privity of contract, which means that a contract
is between the parties and no third party can sue upon it even if it is made for his
benefit.

Case: Dunlop Pneumatic Tires V. Selfridge

In this case, Dunlop sold goods to Dew and Company and secured an agreement with
them that they should not sell the goods below the list price and obtain similar
undertakings to maintain the price list if they sell goods to another trader. Dew sold
goods to Selfridge and they agreed not to sell the goods below the list price. The plaintiff
(Dunlop) sued the defendant (Selfridge) for breach of contract. It was held that there
was no contract between the plaintiff and defendant and therefore, neither of them are
not entitled to sue.

● This rule of privity of contract was criticized in England and the law revision
committee in its 6th interim report stated that where a contract by its express
terms purports to confer a benefit directly to the third party, he must be entitled
to enforce the provision in the contract in his name.

Case: Beswick V. Beswick

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In this case, X was a merchant and the defendant was assisting him in his business. X
entered into a contract with the defendant by which, the business was to be transferred
to the defendant and X was appointed as consultant for his life after his death, the
defendant was to pay an annuity and also that specific performance of the agreement to
the widow. The annuity was not paid; the widow brought an action against the
defendant for the arrears and specific performance. She was held entitled to enforce the
agreement because where a contract is made for the benefit of a third party who has a
legitimate interest in enforcing it, it can be enforced by that third person.

Indian Position Privity of Contract Rule

● In India, there has been a divergence in the opinion of the courts as to how far a
stranger to a contract can enforce it.

Case: Jamnadas V. Ram Avtaar

A borrowed Rs. 40,000 by executing a mortgage in favor of B. Subsequently, A sold the

property which was mortgaged to C for Rs. 44,000 and allowed C, the purchaser, to
retain Rs. 40,000 of the price. To redeem the mortgage, B sued C for the recovery of the
mortgage money.

B couldn't recover the mortgage money, so he sued C for the mortgage amount, but he
could not succeed, because he was not party to the agreement between A and C. It was
held that the undertaking to pay that mortgage money was given by the defendant to his
seller. The mortgagee has no right to avail himself of that promise. The purchaser
entered into no contract with him and therefore, he is not personally bound to pay the
mortgage debt.

Case: Quaza Mohommad Khan V. Hussani Begum

The appellant executed an agreement with the respondent’s father that in consideration
of the respondent’s marriage with his son, he would pay Rs. 500 per month to the

19
respondent and charged certain properties with the payment and gave power to the
respondent to enforce it. The husband and wife got separated and the suit was brought
by the plaintiff-respondent for recovery of the arrears of the amount. It was held that the
respondent, although not the party, was entitled to the arrears because she was the only
person entitled under the benefit of the contract executed by the defendant, whereupon
he is specifically charged that certain property for payment of the agreed amount.

Exceptions:

1. Beneficiary under trust or charge:

The Indian Judiciary has recognized the beneficiary of the contract as an

exception to the privity of contract rule.

Case: Umanath V. Jang Bahadur:

Umanath was appointed by his father as successor of the entire estate. In

consideration of it, Umanath agreed with his father to pay a certain amount from
the property to Jang Bahadur who was the illegitimate son of his father. It was
held that in the circumstances mentioned in the case, a trust was created in favor
of Jang Bahadur and therefore, he was entitled to maintain a Suit.

Case: Farrah Mohammed Khan V. Hussaina Begum

2. Family Arrangement:

Case: Shappu Ammal V. Subramanyam:

In this case, two brothers, upon petition of joint properties, agreed to invest equal
amounts for the maintenance of their mother. She was held entitled to enforce
the promise.

3. Acknowledgement:

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 Where by terms of contract, a party is required to make payment and he
acknowledges it to the third party person, he creates a binding obligation to
perform that promise

Case: Dev Raja V. Ramakrishnaiah:

X sold his house to Y under a registered sale deal and left a part of the sale price
with the purchaser desiring him to pay that amount to C, who was his creditor.
After this, Y made part payments to C, informing him that they were out of the
sale price and the balance will be remitted soon. Y failed to pay. C sued him and
the action was allowed. It was held that there was no privity of contract between
Y and C, but Y, having acknowledged his liability, was entitled to sue.

Privity of Consideration

● Under section 2 (d), it is not necessary that consideration must be furnished by a

promise.
● A promise is enforceable if there is some consideration for it. It is immaterial
whether it moves from the promise or any other person.

Case: Chinnaya v. Ramayya: Past consideration

In this case, an old lady gifted certain prop to her daughter which was registered.
According to the terms of that deed, it was stipulated that a tired amount would be paid
to the plaintiff who was the sister of that old lady. The defendant executed the promise
in favor of the plaintiff to comply with the obligation. The annuity was not paid and the
plaintiff and plaintiff sued to recover it.

Issues:

1. whether the plaintiff can sue the defendant for the amount promised in a
contract, where the consideration has been furnished by a person other than the
plaintiff himself?

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 2. Whether the concept of privity of consideration can be applied in the Indian
scenario or not?

According to Section 2(d) of Indian Contract Act, 1972, when at the desire of the
promissory, promise or any person, does or abstain from doing anything from has done
or has abstained from doing anything or promises to do or abstain from doing
something, such act or abstinence or promise is called a consideration for promise.

Plaintiff’s argument: The plaintiff’s contentions was the consideration of the gift deed
was the promise of the defendant to pay the annual amount to the plaintiff.

Defendant’s argument: Defendant’s contention that consideration to enforce the

contract was not paid by the plaintiff herself. She was not entitled to claim the
enforcement of the contract.

Judgment: the honorable high court concluded that the plaintiff should be allowed to
recover the annuity from the defendant.

There was a similar kind of situation in Dutton v. Poole, wherein a girl was about to get
marriage portion by her father. When her brother got to know this, he agreed to pay that
portion to his sister, but with the condition that his father would not sell a part of the
property in return to which his brother would pay a certain amount. Her brother did not
pay this amount so his sister sued him for the aforesaid amount.

The court allowed this claim as it held that even though the girl was the party to the
contract, she could sue the parties to the contract. The plaintiff was entitled to recover
annuity from the respondent.

According to English law, consideration must be moved from the promise only. If
anyone else fulfills the consideration who is a stranger to a contract, that contract is not
enforceable.

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But this scenario is not applicable in India.

It is explained by Section 2(d). Under section 2(d), it is not mandatory for the
consideration to be furnished.

Section 25 is always read with section 2(d), as it provides exceptions to the doctrine of
consideration. Even without any promise in return, there are promises which are
enforceable.

Ingredients:

Validating situations of nudum pactum.

1. Registered under law of registration cannot be revoked unless provided otherwise

(unlawful means). It has to be moveable under some rate limit. Without
registration, gifts can be made.
2. Compensate someone, who has voluntarily done or legally compelled. Ex: to pay
taxes, occupation by tenant, wonder was legally compellable.

Section 2(25) refers to past considerations.

Natural love and affection is presumed under Evidence Act

3. Promise=> writing and signed

Depends upon Contract of Agency: acknowledged by promisor or his legal agent.

Limitation Act: time starts at the time of every new promise; suit should be lifted
within a given time.

Types of Consideration:

● Past COnsideration: Act done without promise (refer to Sec 25). English law does
not recognise this consideration.
● Executed consideration: It is an act in response to promise.

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 ● Executonry consideration: It consists of an act, promised to be done at sometime
in the future.

Exceptions to neudm pactum: Sec 25.

The provisions of Sec 25 does not affect the validity of any gift which has been made.

Ex: Gift of moveables which has been completed by delivery or gift of immovables
completed by registration.

Consideration must have some value in the eyes of law, it must not be illusionary.

Case: White v. Blue

The father and the son had a strange relationship. The son executed a promissory note
in favour of the father. Son used to complain a lot. Father promised the son that if he
stopped complaining, he would release the son from the promissory note.

● Inadequacy of consideration is immaterial, unless that free consent is disputed in

the court of law.
● Issues are framed on the points not admitted.

Ingredients of Section 15:

1. Committing or threat to commit any act forbidden under IPC (kidnapping,

abduction).
2. Unlawful detention/threat.

Sec 2(d): In pursuance of promise, executing anything done in the past is different from
past consideration without promise.

Free Consent

● Consent is free if it is not caused by coercion, undue influence, fraud,

misrepresentation or mistake.

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 ● Such agreements are voidable at the option of the party whose consent is so
caused.
● Under mistake, the contract is void. (defeats consensus ad idem).

Coercion

● It is defined as committing or threatening to commit any act forbidden by IPC, or

unlawful detaining or threatening to detain any property to the prejudice of any
person to cause consent of that person to agree.
● Ex: Threat to cause grievous hurt, kidnapping, detaining of property- watch given
for repair and not returned within (bailment).

Case: Chickam Amiraju v. Sheshamma

In this case, a man-induced his wife and son to execute a deal in favor of his brother,
concerning certain properties. He created a threat to commit suicide if it was not done.
It was held that of suicide amounted to coercion within Sec. 15 of the IPC and the
agreement was voidbale. An attempt to commit suicide is punishable under the court
but there is no punishment rescribed for suicide as nobody is left to be punished. But it
is clearly an act forbidden by IPC.

Case: Gobardhan Das v. Jai Kishan Das

In this case, the court observed that coercion implies committing or threatening to
commit which is contrary to law.

Case: Andhra Sugar Mills v. State of Andhra Pradesh

Compulsory sales prescribed by a legislation is not a coercion.

Example of detention of property:

Case: Astley v Reynolds

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The plaintiff pledged his property with the defendant for 20 pounds. When he went to
redeem it, the pledge insisted that an additional 10-pound interest needed to be paid.
The plaintiff paid it and sued him to recover it back. The court allowed it.

Case: U.P. Cooperative v. West U.P. Sugar Mills

It was held that the fixation of the price of sugar in the exercise of statutory power is not
coercion.

● In English law, coercion is equivalent to duress.

Undue Influence

Ingredients according to Section 16:

1.
2. Position to dominant will of the another
3. Use of that position to obtain unfair advantage

Ex: lawyer-client, teacher-student, etc.

● Influence is said to be undue when a person who is in a dominant position to

obtain an unfair benefit, uses that position at the cost of another. It means the
domination of the weak mind by a strong mind.
● Transaction is voidable.
● Sub-section 1 is a general provision. Sub-section 2 further provides that the
following person will be deemed to be in a dominating position:
1. Where he holds real or apparent authority
2. When he stands in a fiduciary relationship
● Undue influence is also possible where a relation is such that a person’s contract
with the other, when the other person is not able to give free consent due to
feebleness in body or mind.

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 ● A person is said to be in distress when his mental capacity is temporarily or
permanently affected . Such a person can be easily persuaded to give consent to a
contract which is unfavorable to him.

Case: Mannu Singh v. Ummadutt Pandey

It was held that a spiritual guru is able to dominate the will of the other.

Case: Rani Annapurni v. Swaminatha

In this case, a poor Hindu lady agreed to pay 100% rate of interest upon a sum which
she borrowed from a money lender. She was in urgent need of money to establish her
need of maintenance. It was held that the consent was vitiated by undue influence. She
was in distress and therefore, the court reduced it to 24%.

● Mere urgent need of money on the part of the borrower is not by itself sufficient
evidence of mental distress.

Case: Raghunath Prasad v. Sarju Prasad

In order to defend criminal proceedings instituted by his father, the defendant

mortgaged his properties to the plaintiff and borrowed Rs. 10, 000 at 24% compound
interest. The sum, along with the interest, magnified 11 folds. The defendant contended
that the money lender took undue advantage of his mental distress. The court said that
the borrower failed to prove the position of dominance of the money lender. Therefore,
it was not undue influence.

Case: Subhash Chandra Das Mushiv v. Ganga Prasad Das Mushiv (class presentation)

Fraud

● It is defined in Section 17 and it means any act which causes deception to the
other party. There has to be an intention to deceive with the purpose to induce
the other party to enter into a contract.

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 ● Categories mentioned in Sec 17 are as follows:
1. Statement of fact which is not true and the person believes that it is not
true.

Case: Shivkant Yadav v. Indian Oil Corporation, 2007 SC

It was held that in an application for dealership of petroleum products in

devistic declaration about income by applicant amounted to fraud.

2. Active concealment of material fact is fraud, however passive concealment

is not.

Case: P. C. Chacko v. LIC

In this case, the insured underwent surgery four years prior to the
submission of the proposal. He concealed this fact and obtained policy and
within 6 months, he died. It was held that ensured concealed material fact,
which amounted to fraud.

3. A promise made without any intention of performing is also fraud.

Case: Delhi Development Authority v. Skipper Construction

In this case, the builder entered into a large number of bookings, which
were 3 times the available units and collected money, held to be fraud.

(Kurukshetra Univ.)

(Mere silence no silence)

(Mitthu Lal)

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Misrepresentation (Section 18)

1. Misstatement of a fact which is material to contract without any intention to

deceive leads to misrepresentation.
2. A person positively ascertains a fact to be true when his information does not
warrant it to be so, though he believes it to be true.

Case: Oscar Chess Ltd. v. Williams

A car was exchanged for a second hand car. It was believed by the seller to be of 1948
model because it was registered in that year and priced accordingly. However, it was a
1939 model and of lesser value. The buyer was allowed to recover the loss.

3. This section covers breach of duty, where there is no intention to deceive.

However, it brings an advantage to the person committing it.

Case: Oriental Bank Corporation v John Flemming

The plaintiff had no time to read the document, signed it and he was given an
impression that the document contains already settled matters between the plaintiff and
the defendant. The document was released in favor of the defendant. Plaintiff was
allowed to set aside the deed on the ground that plaintiff placed confidence and it was
his duty to state the truth.

The subject matter of an agreement is supposed by the parties to have certain values,
qualities, etc. If one party leads the other to make a mistake with respect to that, even if
done innocently, would be a case of misrepresentation.

Case: Rex. v. Kylsant

The prospectus of a company stated that the company is regularly paying dividends
which created an impression that it is making profit. Whereas in reality, it was running
into losses. It was considered a misrepresentation.

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Misrepresentation should be of facts material to contract.

Case: LIC v. Beni Bai

It was held that non-disclosure of the fact that the insured was suffering from peptic
ulcers did not amount to misrepresentation. It is a common disease, not material to
disclose.

(1 period)

Refer to section 19.

Mistake of Indian law does not render the contract voidable. However, the mistake of
foreign law is treated as a mistake of fact and all the rules relating to the mistake of fact
apply to it (ignorentia juris non-executes).

Unilateral mistake also does not render a contract voidable and if there is no
misrepresentation or fraud, the contract will be valid.

Section 19 deals with voidability of agreements on the ground of coercion, fraud or

misrepresentation.

Refer Kurukshetra University case, Mithulal Naya v. LIC, LIC v. Beni Bai.

Read illustrations.

Section 19A specifically deals with setting aside of a contract induced by undue influence
and the agreement is voidable. It can be set aside absolutely or if the party has recieved
any benifit who wants to avoid it, it may be aside upon terms and conditions which the
court considers as just and reasonable.

(Read illustrations).

Unlawful Agreements: Section 23

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This section covers the illegality of the object as well as consideration [object is the
purpose of a contract and consideration defined under Sec 2(d) (what you get in return
for your promise)]. Ex: Where money is borrowed to carry out illegal business, the
object is unlawful. However, the consideration is the loan amount for one party.

1. Forbidden by Law:
● Case: Gopal Lal v. Babu Lal

A compromise which was barred by the provisions of the civil procedure code was not
allowed to be imposed as it was expressly forbidden by CPC.

If permitted, would defeat the provisions of any law- not directly forbidden.

● Case: Fateh Singh v. Sanwal Singh

In this case, an accused was acquired to furnish a surety for the sum of Rs. 5,000 for his
good behaviour. He deposited the sum with the defendant and persuaded him to
become his surety. After the period of suretyship was over, the accused the defendant
for the amount deposited. He was not allowed to recover the amount as the agreement
was unenforceable.

2. Fraudulent:

Ex: Any agreement made with a fraudulent purpose promised by a deter to pay a
separate commission or to give preference to one creditor in order to get his consent to a
composition which is proposed with other creditors. The object is unlawful.

3. Injurious to person or property:

Case: Ramswaroop v. Bansi

A person borrowed Rs. 100 and executed a bond promising to work for the plaintiff
without pay for a period of 2 years. In case of default, the borrower was supposed to take

31
exorbitant interest. The court held that the contract was indistinguishable from slavery
involving injury to the person and therefore, void.

4. Immoral

Case: Alice Mary Hill v. William Clark

In this case, recovery for arrears as allowance for past adulterous cohabitation was not
allowed.

Case: Gherulal v. Mahadev Maiya

In this case, the scope of immorality was explained by the Supreme Court. It was held
that the doctrine of immorality is confined to sexual immorality in England as well as in
India. The judge pointed out that the word immorality is extremely comprehensive and
therefore, it must be given restricted meaning to sexual immorality.

Agreement in Restrain of Trade: Section 27

Agreements in restraint of trade are void.

● An individual’s freedom to practice any trade, profession or business is protected

under section 27 because public policy also requires that a person should have
the liberty to work which cannot be taken away by any agreement.
● In Madhup Chandra v. Raj Kumar, the court discussed the scope of section 27. In
this case, the plaintiff and defendant were rival shopkeepers in a locality. The
defendant agreed to pay a certain amount to the plaintiff if he closes his business
in that locality. The plaintiff accordingly did so but the defendant refused to pay
the amount the pliantiff sued him for the said amount, contending that the
restraint was partial and limited to that locality. The court said that the
gareement is void and laid down that the words in Sec 27 do not mean absolute
restriction only, but it also covers partial restriction.

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 ● There are exceptions to the general rule.

Statutory Exceptions:

1. Sale of goodwill (Sec 27): Goodwill is not defined, but it is the reputation attached
to the business. It is a probability that old customers will resort to old places.
Goodwill cannot exist without business

Ex: Vancuovur Malt and Sake Brewing Company v. Vancuour Brewing Ltd.

In this case, a company was licensed to manufacture liquor and beer, but it
confined its business to producing sake. It entered into an agreement with
another manufacturer to sell the business along with the goodwill of
manufacturing wine and beer. The court said that nothing had been sold because
they did not produce wine or beer other than sake and therefore, there cannot be
any goodwill without business.

Statutory Exceptions:

1. Section 27 provides that the agreement has to specify the local limits of restraint
when there is a sale of goodwill. The seller can be restrained within geographical
limits, but the limit must be reasonable. The seller can be restrained from
carrying on similar business and only for such period for which the buyer actually
caries on the business which is sold.
2. Exceptions under the Partnership Act:
● There are provisions under the partnership act which enable the partner during
the continuance of a firm’s business to restrict their mutual liberty by agreeing
that none of them shall carry on similar business other than that of the firm.
● Restrictions can be put upon the outgoing partner as well.

Exceptions created by Judiciary:

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 1. Trade Combinations (agreements between the market players which are made for
the furtherance of trade and business and which are reasonable will not be hit by
Section 27)
● Case: Fraser and Co. v. Bombay Ice Manufacturing Company

In this case, an agreement between the ice manufacturers fixing a

minimum price for the sale of ice was held to be valid and the court said
that the basic object of the agreement was to regulate the business.

2. Exclusive dealing agreements (vertical levels)

In solus agreement is reasonable and fair then it is generally valid

● Shubha Naidu v. Hajai

In this case, an agreement by a person to send all the products to the

plaintiff and not to sell it to anyone else was held to be valid.

● Shekh Kalu v. Ram Charan Bhagat

A seller of a particular product entered into an agreement with all the

manufacturers of that product in a city and the agreement was such that it
was binding from generation to generation. It was held to be unreasonable
and not valid.

● Gujarat Bottling Co. Ltd. Coca-Cola Co. Ltd.

In this case, there was an agreement for the grant of franchise by

coca-cola, which contained a negative stipulation, restraining GBC from
the manufacturer, bottling, selling, deal or otherwise with the products, or
beverages of any other brand during the subsistence of the agreement. It
was held that the negative stipulation was intended to promote trade and
the operation of this stipulation was confined by only to the period of

34
 subsistance of the agreement and not after the termination. It was
reasonable and not hit by Section 27.

3. Employment Agreements
● An employ may be restrained by the employer in taking employment in
direct competition with the employer. However, such restraint must be
reasonable.
● Case: Electro-steel Casting Ltd. Saw Pipes Ltd.

In this agreement, an employee agreed with the employer to work with

him faithfully for a period of 5 years and not to work with any competitor.
It was held to be liable because it was not restrain of trade but against the
breach of faith and loyalty.

● Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co.

[1 class missed]

Uncertain Agreements: Section 29

● The agreement may be uncertain either because its terms are ambiguous, vague
or incomplete.
● A contract will be void for uncertainty if its essential terms are uncertain. In
determining what is essential and what is not, one must look at the intention of
the party.

Case: Gulab Chand Gambhir Lal v. Govind Ram

A contract which is intended to be binding may not be enforceable even though certain
terms have not been precisely agreed. If the nature of the term can be ascertained by
implication (right to transfer title).

Case: Teamco Pvt. v. T. M. S. Mani

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In this case, the name of the person who would appoint the arbitrator was left blank. It
was held that the court cannot supply lacunae to perfect the imperfections in an
arbitration agreement wherein the language used is not clear or meaningful.

Case: Scammen v. Ouston

In this case, Lord Justice Wright said that the object of the court is to do justice between
the parties and the court will do its best, if satisfied that there was an ascertainable and
determinate intention. To give effect to that intention looking at substance and not mere
form, it will not be deterred by mere difficulties of interpretation. Difficulty is not
synonymous with ambiguity, so long as any definite meaning can be extracted.

Case: Dhanraj Mal Govind Ram v. Shyamji Enterprises

It was held that commercial documents are sometimes expressed in language which
does not on its pace bear clear meaning. The effort of the court is to give meaning if
possible.

(read all illustrations.)

Wager Agreements: Section 30

● Agreements by way of wager are void. A wager is a promise to give money or

money’s worth on the determination for ascertainment of an uncertain event.
● Wager is not defined in ICA. However, they are declared void under Section 13.
● Horse racing is excluded.

Case: Carlin v. Carbolic Smokeballs company

In this case, the case of wagering agreements was also discussed and the judicial
committee discussed that a wagering agreement is one by which two persons professing
to hold opposite views, touching the issues of future uncertain event, mutually agree
that dependant on determination of that event, one shall pay or hand over a sum of

36
money or other stakes, neither of the contracting party has any other interest in that
contract, other than the some or stake that he will win or loose. There is no real
consideration for making such a contract by either of the parties.

It is essential to a wagering agreement that each party should either win or lose and
therefore, wagering agreements are dependant on uncertain agreements. If either of the
parties may win but not lose, it is not wager.

● Essential Features:
1. Uncertain event: Under wager, the performance of the bargain must
depend upon future uncertain events or any past event, of which the
parties are not aware.
2. Mutual chances of gain or less: If there are no mutual chances, it is not a
wager.

Case: Baba Sahib v. Raja Ram:

In this case, two wrestlers agreed to play a wrestling match upon the condition that the
party failing to appear on the day fixed will have to forfeit Rs. 5k in favour of the
opposite party. The defendant failed to appear. The plaintiff sued him and it was held
that this was not a wager and is a valid agreement.

● Neither party should have control over the event. If one of the parties has control
over the event, this will not be a wager.
● Neither party should have any interest in the happening or non-happening of the
event.
● Speculative transactions are not wagers because party’s objective is not only to
win or lose.

Contingent Contract

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 ● Contingent contact means enforceability of that contract is dependent upon the
happening or non-happening of an event.
● A contingent contract is a contract as defined in Sec 31, to do or not to do
something if some event collateral to such contract does or does not happen.
These are the contracts where the promisor performs his obligations only when
certain conditions are met.
● Examples:
1. Contract of indemnity: these are the contracts under which one party
promises to save the other from loss. The party must suffer loss in order to
enforce the contract of indemnity.
2. Insurance contracts: Fire insurance.
3. Contract of guarantee: the agreement is such that one party promises to
perform the obligation of the other or discharge liability of debt in case of
his default.

Essential Elements:

1. There must be a valid agreement to do or abstain from doing something. That

agreement must be dependent upon the happening or non-happening of future
uncertain events.
2. The event must be future and uncertain and the contract must be conditional
upon it.
3. The said event must be collateral to such a contract and must exist
independently.
4. The event should not be at the discretion of the promiser.

Provisions related to the Enforcement of the Contingent Contract (Sections 32 to 36)

1. The contingent contract to do or abstain from doing something if an uncertain

event happens. The contract cannot be enforced until the event happens. If the
event becomes impossible, the contract shall become void.

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 2. Contingent contracts to do or not do something upon the non-happening of an
uncertain future event can be enforced when the event becomes impossible. If the
event happens, the contingent contract is void.
3. When an event on which the contingent contract is based the future conduct of a
living person becomes impossible when such a living person does anything which
makes it impossible for the event to happen. [read illustrations]
4. Contracts contingent on an event happening within a fixed time become void if it
doesn't happen and the time lapses. It also becomes void if the event becomes
impossible before the time-fixed.

Ex: X promised to pay a sum of Rs. 10k if a ship returns within 2 years. The
contract may be enforced only when the ship returns within time and if it is
destroyed during the voyage, then the agreement becomes void.

5. A contingent contract on an event non-happening within a fixed time may be

enforced when the fixed time if expired.

Ex: A promises to pay a sum of money to B if a certain ship does not return before
2 years. The contract may be enforced if it does not return in the fixed time. Also,
if the ship gets damaged or destroyed before time, the contract can be enforced.

6. A contingent contract could do an impossible event as void.

Repudiation: Defaulter

Recession: Other party, then court of law.

Discharge by Impossbility of Performance

Section 56 deals with impossibility.

1. First parah provides that an agreement to do an impossible act in itself is void.

(read illustrations).

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 2. The second paragraph provides that an agreement to do an act becomes
unenforceable due to impossibility or unlawful due to some event that the
promisor could not prevent.
3. Impossibility here includes physical impossibility as well as legal impossibility.
Such cases also fall under section 23.
4. Sometimes when the performance is impossible or unlawful and is within the
knowledge of the promisor, such promisor must compensate the promisee due to
loss sustained, resulting from non-performance.
5. The performance of is contract may be possible initially when it was entered into
but it may become impossible or unlawful subsequently (refer to Section 56). In
such cases, the contract becomes impossible and thereby void and the parties
shall be discharged from their obligation (read illustrations).

Case: Punj Sons Pvt. Ltd. v. UOI: In this case, the promisors agreed to supply milk
containers which were coated with tin. In spite of reasonable efforts, the promisors
could not get tin and therefore, the promise could not be performed. It was held that the
performance of the promise became impossible due to the non-availability of coating
and the contract had become void.

Doctrine of Frustration

This doctrine applies when the performance becomes impossible due to some event and
in such a case, the promisor is excused from the performance of the contract.

Case: Taylor v. Cald Well

It was held that when a contact cannot be performed without the continued existence of
a king, the performance shall be deemed to be impossible if the thing ceases to exist.

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