Contract Law-I - Short Notes & Case Comments

FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) –First Semester
CONTRACT LAW-I (3 YDC)NOTES & CASE COMMENTS
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FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
Contract
FIRST SEMESTER (3 YDC) Law-I
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LAW-I Notes
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FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
By
FIRST SEMESTER (3 YDC) – CONTRACT
P.Chandra SekharLAW-I – SHORT NOTES & CASE COMMENTS
LL.M.,SET.,NET.,
Assistant
FIRST SEMESTER (3 YDC) – CONTRACT Professor
LAW-I – SHORT NOTES & CASE COMMENTS
V.R. Law College, Nellore
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
Mail: chandujustice@gmail.com
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FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
FIRST SEMESTER (3 YDC) – CONTRACT LAW-I – SHORT NOTES & CASE COMMENTS
P. Chandra Sekhar LL.M., SET., NET. -1-
 Contract Law-I - Short Notes & Case Comments

1. Acceptance by Post

Rules of acceptance by post: Section 4:

1. The communication of acceptance is complete as against the offeror, when it is

posted to him.

2. The communication of acceptance is complete as against the offeree, when it

comes to the knowledge of the offeror.

Illustration: The communication of acceptance is complete:

 As against A, when the letter is posted by B
 As against B, when the letter is received by A.
 An offeror is bound when letter or telegram of acceptance is posted.
 The offeror becomes bound even if the letter is delayed or lost in post.

Indian Law: In India the acceptor does not become bound by merely posting his
acceptance. An acceptor becomes bound by his acceptance when his letter of
acceptance comes to the knowledge of the offeror. He can revoke by sending his
communication of revocation by a quicker mode, such as telegram, fax, email etc.,

2. Acceptance

Acceptance means agreeing the offer made by the offeree. A contract is created only
after an offer is accepted. According to Section 2(b), “when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be accepted”. A
proposal becomes a promise, when it is accepted. According to Anson “acceptance
is to an offer what a lighted match is to a train of gunpowder. It produces something
which cannot be recalled or undone”. It means when the offeree signifies his assent
to the offeror, the offer is said to be accepted. Then the parties become bound by a
contract.

e.g.: A offers to sell his house to B for 5 lakhs. B accepts the offer to purchase the
house. A’s offer is said to be accepted and it becomes an enforceable agreement
between A and B.

Acceptance may be express or implied. When the acceptance is made by words

spoken or written it is called ‘express acceptance’. When the acceptance is made
otherwise than express modes it is called ‘implied acceptance’. Implied acceptance
may be gathered form the surrounding circumstances or from the conduct of the
parties. (Section 9, Indian Contract Act.)

e.g.: When a person boards a train or bus, he impliedly accepts to pay the usual
fare. The offeree is not bound to accept the offer. He may or may not accept.
Acceptance cannot be implied from the silence of the offeree or his failure to
answer, unless the offeree has by his previous conduct indicated that his silence
means that he accepts.

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3. Accord and Satisfaction

It is an agreement to accept less than is legally due in order to wrap up the

matters. Once the accord and satisfaction is made and the amount paid (even
though it is less than owed) the debt is wiped out since the new agreement (accord)
and payment (the satisfaction) replaces the original obligation.

4. Adequacy of consideration

Consideration means a price or a payment. It may be described as something

accepted or agreed upon as a return or equivalent for the promise made. According
to Section 25 an agreement without consideration is void and cannot be enforced.
Hence, consideration is one of the most important essential elements of a contract.
Consideration technically called ‘quid pro quo’ which means ‘something in return’.
When a party to an agreement promises to do ‘something’, he must get ‘something
in return’ for it. This is known as consideration. Consideration need not necessarily
be in cash or kind. It may be an act or abstinence or promise to do or not to do
something.

Illustration: A agrees to sell his house to B for Rs. 5,00,000/-. Here Rs. 5,00,000/-
is the consideration for A’s promise to sell the house, and A’s promise to sell the
house is the consideration for B’s promise to pay Rs. 5,00,000/-.

The parties have freedom to make any contract of their choice with free consent.
The consideration need not be adequate. The Court will not go into the question of
adequacy or inadequacy of consideration (Vijaya Minerals Pvt. Ltd v. Bikas Deb
AIR 1996 Cal 67). The parties may agree for lesser price or higher price.

e.g.: A agrees to sell his horse worth Rs. 1000 for Rs. 10 only. A’s consent to the
agreement was freely given. Such agreement is valid even though the price is
inadequate (Vijaya Minerals Ltd v. Bikash Chandra Deb. 1996 Cal 67).

5. Agreement in restraint of marriage

Every agreement in restraint of the marriage of any person, other than a minor, is
void. Thus any agreement which restricts a person’s freedom to marry, or to marry
any person of his choice is against public policy and is void. An agreement in
restraint of marriage is destructive of the sanctity of marriage.

Lowe v. Peers (1768) 4 Burr. 2225. The defendant promised to Ms. Catherine
Lowe, the plaintiff that he would not marry any person other than Ms. Catherine
Lowe and further promised to pay to her a sum of 2000 pounds if he marries
somebody else. Such agreement was held to be against public policy and therefore
void.

Law discourages agreements, which restrain the right of marriage. The restraint
may be general or partial. The party may be restrained from marrying at all, or

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from marrying for a fixed period, or from marrying a particular person, or a class of
person. All such agreements except in favour of a minor are void. The following
instances are not restraint of marriage:

a. Penalty upon remarriage

b. Agreement to lose the right of maintenance on remarriage
c. Agreement between two widows to lose right to the deceased husband’s estate on

6. Allied aspects of offer

Offer is a starting point in the formation of a contract. It is a willingness to do or

not to do something. Offer is made with a view to obtain the acceptance of the other
party. The person making the proposal is called the proposer or offeror or promisor.
The person to the proposal is made is called the offeree or promisee.

e.g.: A offers to sell his house to B for Rs.10 Lakhs. This is an offer. A is the offeror
and B is the offeree.

Essentials of an Offer
1) It may be express or implied
2) Intention to create legal relations
3) Terms must be clear and certain
4) It must be communicated to the offeree
5) It may be specific or general

7. Breach of contract

Discharge by Breach of Contract: Failure to fulfill the promise or obligation is

called breach of contract. Breach of contract may be by actual breach or
anticipatory breach.

A. Actual breach of contract: If a party fails to perform his obligation at the time
when the performance is due is called ‘actual breach of contract’.

e.g.: A agrees to deliver to B 100 bags of rice on 1st March. He does not deliver the
rice on that day. There is a breach of contract.

B. Anticipatory breach of contract: If a party declares his intention of non-

performance of the contract before the performance is due is called ‘anticipatory
breach of contract’.

e.g.: A agrees to supply to B 100 bags of rice on 1st March. Before this date, he
informs B that he is not going to supply the rice. There is an anticipating breach of
contract.

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 Contract Law-I - Short Notes & Case Comments

8. Capacity to contract

Persons who enter into a contract must have ‘capacity’. It means, the parties must
have competence to enter into a valid contract. The parties must be competent to
contract as per Section 10, Indian Contract Act, 1872.

Who are competent to contract?

Section 11: Every person is competent to contract who is of the age of majority
according to the law to which he is subject, and is of sound mind, and is not
disqualified from contracting by any law to which he is subject. Hence minors,
persons of unsound mind and persons disqualified by law, are not competent to
contract.

9. Coercion

Section 15 defines coercion. “Coercion is the committing or threatening to commit,

any act forbidden by the Indian Penal code, or the unlawful detaining, or threatening
to detain, any property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.” In English law coercion is called
Duress or Menace. The law commission of India in its 13th report on Indian contract
Act has recommended including the other penal laws also in the definition of
Section 15.

Illustration: A threatens to kill B’s son if he does not sell his house to him. B
agrees to sell such threat amounts to coercion and such consent is not free
consent. The acts of coercion should be done with the intention of causing the
other person to enter into an agreement. The party to the contract need not cause
the coercion, even it may be caused by a third party.

e.g.: threat to kill, rape, hurt, attempt to commit suicide.

Essentials:
1. Committing or threatening to commit any act forbidden by IPC or
2. Unlawfully detaining or threatening to detain any property
3. The act must be done with intention of causing plaintiff to enter into agreement.

10. Communication of acceptance

Acceptance must be communicated: When an offer is mad to a particular person,

it can be accepted by him alone, (Boulton v. Jones (1857) 2 H and N 564. But in
case of general offer, any person to whom the offer is made can accept it. (Carlill v.
Carbolic Smoke Ball Co. (1893) 1 QB 256). The offeree must signify his assent or
communicate the acceptance to the offeror. The offeror cannot impose upon the
offeree a duty to give reply. The offeror cannot say that failure to give reply will be
deemed to be the acceptance of the offer. Therefore mere silence cannot be regarded
as acceptance.

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 Contract Law-I - Short Notes & Case Comments

Who can communicate acceptance? Acceptance must be communicated by the

offeree, or duly authorized person on his behalf. If an unauthorized person makes
it, it does not form a contract. Thus, it must be given by the party or parties to
whom the offer is made.

To whom the communication of acceptance is made? Acceptance must be

communicated to the offeror himself. A communication made to any other person is
not valid.

11. Consensus-ad-idem

Every contract must have two essential elements. They are agreement and legal
obligation. Legal obligation binds the parties together. All agreements are not
enforceable. Only legal obligations are enforceable but social obligations are not
enforceable. An agreement to go for a film or marriage is the good example for a
social contract. Such are not enforceable at law. A agrees to sell his car to B for two
lakhs. It is a contract. An agreement, which creates legal obligation, is enforceable
in the Court of law. Therefore ‘all contracts are agreements, but all agreements are
not contracts’. Only those agreements, which satisfy the essentials under Section 10
of Indian Contract Act, are contracts.

Consensus-ad-idem: Consensus-ad-idem means ‘identity of minds’. Both parties

must have clear understanding about the subject matter of the contract at the
same time and in the same sense.

12. Contingent contract

Section 31: “A contingent contract is a contract to do or not to do something, if

some event, collateral to such contract does or does not happen”.

e.g.: A contracts to pay B Rs. 10,000/-, if B’s house is burnt. This is a contingent
contract.

It is like a conditional contract and the condition is uncertain. All contracts of

insurance are contingent contracts. A contract to pay a sum of money on the death
of a person is not a contingent contract because death is certain in everyone’s life.
(Chandulal v. CIT (1967) 1 SCR 921, 925 AIR 1967 SC 816, 818.

Essentials
1. There must be a contract to do or not to do something
2. Happening or non-happening of some event.
3. Such event must be collateral to the contract.

13. Contracts with persons of unsound mind

Section 10 provides that ‘all agreements are contracts if they are made by competent
persons’. Unsound mind is the result of mental disorder. According to Section 11,

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only persons of ‘sound mind’ have capacity to enter into contract. Therefore a
person of unsound mind has no capacity to contract.

e.g.: transfer of property by a deed of gift, sale, and lease are void ab initio.

Who is a person of unsound mind? A person who is suffering from temporary or

permanent mental disorder is called a person of unsound mind. Section 12
provides that ‘a person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his interests’. Unsoundness of mind
may arise from idiocy, lunacy, drunkenness, mental illness etc.

Rules of unsoundness of mind:

1. A person who is usually unsound, but, occasionally of sound mind may make a
contract when he is of sound mind. It means a person suffering from lunacy can
enter into contract during lucid intervals. Section 12, III (a)
2. A person who is usually sound mind, but occasionally of unsound mind, cannot
make a contract when he is of unsound mind. Section 12 Para 3.
3. Thus soundness of mind is required only at the time of making a contract.

Drunkenness: Drunkenness is also treated on par with the unsoundness of mind,

because a person who is so drunk cannot understand the terms of contract.
(Section 12 III (b)). At the time of entering into contract a person should be
intelligent enough to form rational judgment about such transaction.

14. Contractual remedies

Law provides certain remedies for the breach of contract to the aggrieved party.
When there is breach of contract, the non-guilty party has one or more of the
following remedies.

A. Suit for specific performance

B. Suit for injunction
C. Suit for damages
D. Suit for quantum meruit
E. Rescission of Contract

15. Counter offer

Counter offer is the rejection of the original offer and making a new offer (Hyde v.
Wrench (1840) 3 Bear 334). If any term is refused or varied or added by the offeree
it creates new offer. It cannot be treated as acceptance. Thus there could not be a
contract between the parties. However, a mere request for information as to
possible terms of credit would not be treated as a counter-offer (Stevenson v.
McLean (1880) 5 QBD 346) but is only a business enquiry.

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 Contract Law-I - Short Notes & Case Comments

Hyde v. Wrench 1840 3 Bear 334 On 6th June the defendant offered to sell his
property for £1000 to the plaintiff. On 8th June, the plaintiff wrote a reply to
purchase the same for £950. The defendant refused it. Subsequently, the plaintiff
again wrote that he prepared to pay £1000. The defendant refused. The Court held
that the plaintiff’s reply to purchase for £ 950 was not an acceptance. It was only a
counter offer, which terminated the original offer. Therefore there was no contract
between them.

16. Cross offer

When two parties make identical offer to each other, in ignorance of each other’s
offer are known as cross offer. They do not make a contract.

Illustration: A offers by means of letter to sell his house to B for 5 lakh rupees. B
on the same day and in ignorance of A’s letter writes a letter to A offering to
purchase his house for 5 lakhs rupees. Both the letters cross each other in post.
The letters are cross offers and there is no binding contract between A and B.

Tinn v. Hoffmann & Co. (1873) 29 L.T 271 On 28th Nov. 1871 the defendants
offered to sell 800 tons of iron at a price of 69 Sh per ton to the plaintiff. The same
day the plaintiff wrote to the defendants offering to buy 800 tons of iron at a price
of 69 Sh. per ton. Unknown to each other, the two letters crossed each other in
post. The plaintiff sued the defendants for not supplying the iron. The Court of
Appeal held they were cross offers and the offer of neither of the parties having
been accepted by the other. Mere cross-offers made in ignorance of each other
would not create contract. Therefore the defendants were not liable.

17. Declaratory decree

Law relating to declaratory decrees is dealt under Section 34 and 35. A declaratory
decree of Court is a decree, which declares that the plaintiff is entitled to any legal
character, or to right as to any property against defendant, who denies his title. It
is a declaration by way of a decree that the plaintiff is entitled to specific legal right
to property. The object of declaratory decree is to prevent future litigation by
removing the existing cause of the controversy.

According to Sec. 35 the declaration decree grant under Section is binding only the
parties to the suit. It declares only the rights of the parties without any
consequential relief, which can be enforced by the execution of the decree. The
declaratory decree does not create or confer new right upon the plaintiff, but
removes the doubt over the rights and title on the properties in question. It gives
relief to the plaintiff to possess the property peacefully from the wrong doers and
exercises his legal right, which the plaintiff is entitled. It strengthens the title of the
plaintiff.

Essentials
1. Plaintiff must be entitled to any legal character or to any right as to any
property.

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 Contract Law-I - Short Notes & Case Comments

2. Defended must have denied or is interested to deny character or title of plaintiff

3. Plaintiff must prey only for declaration of his legal character or title

18. Discharge of Contract

Discharge of contract means termination (Stopping/Closing) of the contractual

relationship between parties. Contract creates rights and liabilities. The contract is
said to be discharged or terminated when the rights and liabilities comes to an end.
Parties become free after discharge of contract.

Various modes of discharge of contract

1. By performance
2. By agreement or consent
3. By lapse of time
4. By impossibility of performance
5. By operation of law
6. By breach of contract.

19. Doctrine of Frustration/ Impossibility of performance

Frustration means disappointment of a hope. According to Section 56, an

agreement to do an act impossible in itself is void.

e.g.: an agreement to discover a treasure by magic is void, because it is impossible

to perform.

Essentials
1. There must be a valid and subsisting contract between the parties
2. There must be some part of contract yet to be performed
3. Subsequently the contract must become impossible to be performed.

The doctrine of frustration is based on the maxim Lex non cogit ad impossibility
which means “the law does not compel the impossible”. Sometimes the
performance of a contract is quite possible when it made by the parties. However by
happening of some event subsequently its performance may become impossible or
unlawful. In either case the contract becomes void.

Illustration: A and B contract to marry each other. Before the time fixed for the
marriage, A goes mad. The contract becomes void.

Specific grounds of Frustration

1. Destruction of Subject Matter
2. Change of circumstances

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3. Non-occurrence of contemplated event

4. Death or incapacity of party
5. Government or legislative intervention
6. Intervention of War

20. Free consent

Consent means willingness. According Section 10 the parties must enter into
contract with free consent. Where there is no free consent there is no contract.
Section 14 explains the ‘consent’ is said to be free when it is not caused by:

1 Coercion Section 15
2 Undue influence Section 16
3 Fraud Section 17
4 Misrepresentation Section 18
5 Mistake Section 20 - 22

Thus, consent must be free from coercion or undue influence or Fraud or

misrepresentation or mistake. A contract without free consent is not valid. When
the consent is obtained by coercion or undue influence, or fraud or
misrepresentation such agreement is voidable at the party who consent was so
caused. When the consent is caused by mistake such agreement is void (Section
20, 21 and 22) and it cannot be enforced Section 2 (g).

Free consent is an essential requisite of a valid contract. Free consent is the

consent, which has been obtained by the free will of the parties out of their own
accord. Section 13 provides that ‘two or more persons are said to consent when
they agree upon the same thing in the same sense. This is called consensus ad
idem in English law. It means that the both parties must have same thing in mind
while entering into contract.

21. Immoral agreements

If the object or consideration of an agreement is regarded by the Court to be

immoral or opposed to public policy, such agreement is unlawful and is void.

e.g.: A agrees to let her daughter to B for concubinage. The agreement is void,
because it is immoral

Choga Lal v. Piyari (1909) 31 All 58 A landlord let out his house, knowing that
the same was to be used for the purpose of running a brothel. The tenant did not
pay rent for some time. The Court held that the landlord cannot recover the rent
because such agreement was void.

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22. Injunction/Preventive Relief

Order of the Court, which prohibits commencement, or continuance of a wrongful

act. According to Lord Halsbury “an injunction is a judicial process whereby a party
is ordered to refrain from doing or to do a particular act or thing”.

Illustrations:
1. A lets certain land to B, and B contracts not to dig sand or gravel there out. A
may sue for an injunction to restrain B from digging in violation of his contract.
2. B and C are members of a Hindu Undivided Family. A cuts timber growing on
the family property, and threatens to destroy part of the family house and sell
some of the family utensils. B and C may sue for an injunction to restrain him.

Injunction acts in personam. It may be issued for and against individuals, public
bodies or even state. Disobedience of an injunction is punishable as contempt of
Court. The Court grants injunction at its discretion.

While exercising its discretionary powers the Court must keep in mind in well-
settled principles of justice, equity of and fair play. An injunction will not be granted
in the following circumstances:

A. Where damages are the appropriate remedy

B. Where injunction is not the appropriate relief
C. Where the plaintiff is not entitled to an injunction an account of his conduct
D. Where the contract cannot be specifically enforced
E. Where the injunction would operate inequitably

23. Invitation to offer

Invitation to an offer is an invitation to the general public to make an offer. It is

only a first step in the formation of a contract. A person who makes an invitation to
offer invites others to make an offer. An invitation to offer is not an offer. Such
invitations are not real offers in the eye of law and do not become promise on
acceptance. The person who responds to an invitation to offer makes the actual
offer. This is also known as “offer to negotiate” or “offer to receive offer” or “offer to
chaffer” or “invitation to treat”.

e.g.: a price list, price tags displayed on goods, an advertisement inviting tenders
hotel menu, railway time table of the contract, an advertisement of ‘house for sale’
etc.

24. Kinds of damages

Kinds of Damages are:

1. General Damages
2. Special Damages

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3. Nominal Damages
4. Exemplary Damages and
5. Liquidated Damages

1. General Damages: The compensation awarded to the injured party for the
actual loss caused by breach of contract it is also known as “Ordinary Damages” or
“substantial Damages”.

2. Special Damages: Special Damages are those which arise on account of the
unusual circumstances affecting the plaintiff.

3. Nominal Damages: Nominal Damages are granted where breach of contract is

committed without any real loss to the injured party.

4. Exemplary Damages: Exemplary Damages is the compensation awarded more

than the actual loss suffered.

5. Liquidated Damages: If the amount of damages in the event of breach is pre-

determined by parties at the time of entering into the contract is called Liquidated
Damages.

6. Damages for loss of reputation: Damages for loss of reputation by breach of a

contract are not generally recoverable.

25. Liquidated Damages and Penalty

If the amount of damages in the event of breach is pre-determined by parties at the

time of entering into the contract is called Liquidated Damages.

26. Misrepresentation

Misrepresentation means a false-statement of a fact’. When the consent of a party

to a contract has been obtained by misrepresentation, it is not free consent and the
contract is voidable at the option of the party. According to Section 18
misrepresentation means and includes:
1. When a false statement is explicitly made (positive assertion) innocently without
any intention to deceive, although he believes it to be true amounts to
misrepresentation.

2. When a false statement is made by a breach of duty to gain some advantage or

benefit at the cost of the other party, although it was made without any
intention to deceive, it amounts to misrepresentation.

3. When a party acting innocently causes another party to make a mistake as to

the substance of the thing, which is the subject of the agreement. It amounts to
misrepresentation.

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Essentials
1. There must be false representation of a fact
2. Such representation must be the cause of consent
3. Such representation must be made with an intention to induce other party to
enter into contract
4. Such representation must be made before the conclusion of the contract
5. Such representation must be made either directly or indirectly
6. Such representation must be made without any intention to deceive the other
party

27. Mistake as to subject matter of the contract

I. Mistake as to existence of subject matter: The agreement is void when both

the parties under a mistake as to the existence of the subject matter.

e.g.: A agrees to buy from B, a certain horse but the hose was dead at the time of
contract. Both A and B were not aware of the death of the horse. The agreement is
void.

II. Mistake as to quality or identity of subject matter: If the parties to the

contract are mistaken regarding its quality or identity the agreement would be
valid. It usually arises where one party intends to deal in one thing and the other
intends to deal in another.

28. Mistake of law

I. Mistake as to ordinary law: A contract is not voidable because it was caused by

a mistake as to any law in force in India. (Section 21) Ignorance of law of the
country is not excusable ignorance.

Illustration: A & B makes a contract on erroneous belief that a particular debt is

barred by Indian law of limitation. Such contract is not voidable cannot be avoided.

II. Mistake of foreign law: A person is bound to know the law of his country, but a
person is not expected to know all foreign laws. Therefore, ignorance of foreign law
is excusable. It is equal to ignorance of fact (Section 21 of Indian Contract Act).

29. Novation

Discharge of contract means termination (Stopping/Closing) of the contractual

relationship between parties. Contract creates rights and liabilities. The contract is
said to be discharged or terminated when the rights and liabilities comes to an end.
Parties become free after discharge of contract.

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Novation means new contract replacing old contract with the consent of the parties.
The consideration for the new contract is the discharge of the old contract.

e.g.: A owes money to B. It is agreed between A, B and C that B shall accept C as

his debtor instead of A. The old debt of A to B is discharged and new debt C to B is
contracted.
30. Nudum pactum

Nudum pactum means a nude or bare agreement. An agreement without

consideration is a nude agreement and a contract made on such agreement is not a
contract at all. This is called ‘nudum pactum’.

Exceptions: According to Section 25, ‘an agreement without consideration is void’.

However, the agreement without consideration is valid under the following cases:

1. Promise out of natural love and affection made in writing and registered
2. Promise for past voluntary services
3. Promise to pay a time barred debt
4. The contract without consideration does not apply to gifts.
5. Charitable Subscriptions

31. Offer

Offer is a starting point in the formation of a contract. It is a willingness to do or

not to do something. Offer is made with a view to obtain the acceptance of the other
party. The person making the proposal is called the proposer or offeror or promisor.
The person to the proposal is made is called the offeree or promisee.

e.g.: A offers to sell his house to B for Rs.10 Lakhs. This is an offer. A is the offeror
and B is the offeree. When a statement is made without any intention to obtain the
assent that cannot be called as proposal. The offer may or may not be accepted. An
offer can be withdrawn before it is accepted.

Essentials of an Offer
1. It may be express or implied
2. Intention to create legal relations
3. Terms must be clear and certain
4. It must be communicated to the offeree
5. It may be specific or general

32. Past consideration

Past consideration means a price or a payment. It may be described as something

accepted or agreed upon as a return or equivalent for the promise made. According
to Section 25 an agreement without consideration is void and cannot be enforced.

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Hence, consideration is one of the most important essential elements of a contract.

Consideration technically called ‘quid pro quo’ which means ‘something in return’.
When a party to an agreement promises to do ‘something’, he must get ‘something
in return’ for it. This is known as consideration. Consideration need not necessarily
be in cash or kind. It may be an act or abstinence or promise to do or not to do
something.

When an act is done before the date of promise it is called ‘past consideration’.

e.g.: 1) A lost his purse. B, a finder of the purse delivers it to A. A, in recognition

of this service, promises to pay a sum of money to B. This is a past consideration.

e.g.: 2) A renders some service to B in the month of January. In February B

promises to pay five thousand rupees. This is a past consideration.

33. Quantum meruit

Quantum meruit means ‘as much as earned or as much as is merited’. When a

person has done some work under a contract, and the other party repudiates the
contract, or some event happens which makes the further performance of the
contract impossible then the party who has performed the work can claim
remuneration for the work he has already done. The claim for quantum meruit can
be brought only by the party who is not in default.

Essentials
1. Breach of contract by non-performance i.e., or
2. Prevent the performance by the other side
3. Injured party must have performed his part of duty or
4. The party must elect to be discharged from further performance.

Illustration: A agrees to deliver B 100 bags of wheat and A has already delivered
75 bags, B refuse to accept any further supply, A can recover from B the value of
75 bags of wheat which he has already delivered.

34. Ratification of minor's contract

Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and is of sound mind, and is not disqualified from
contracting by any law to which he is subject. Hence minors, persons of unsound
mind and persons disqualified by law, are not competent to contract.

A minor’s agreement is void ab initio. It cannot be validated by subsequent

ratification after the minor has attained the age of majority. Therefore a transaction
entered into by minor cannot be ratified after attaining the age of majority (Bhola
Ram v. Bhagat Ram AIR 1927 Lahore 24,26)

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35. Rescission of the contract

Rescission of contract means cancellation of the contract. When one party breaches
the contract, the injured party may file a suit for cancellation of the contract. Then
the aggrieved party is free from all his obligations under contract. He is also
entitled for compensation for the loss suffered by him for/by the non-fulfilment of
the contract.

Illustration: C promises to deliver 10 tons of sugar of B on a certain date and B

promises to pay the price on receipt of the goods. C does not deliver the goods on
the appointed day. B need not pay the price. B may treat the contract as rescinded
(cancelled) and may keep quite or may file a suit for rescission and claim
compensation.

36. Restitution in Minor's contract

Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and is of sound mind, and is not disqualified from
contracting by any law to which he is subject. Hence minors, persons of unsound
mind and persons disqualified by law, are not competent to contract.

Minor is required to return the benefits so received or secured by him fraudulently.

It is applicable only to goods and properties but not to money. The object of
doctrine of restitution is to return the fraudulent gains taken by the minor to the
real owner. (Leslie v. Sheill (1914) 3 KB 607. However the English law Doctrine of
Restitution is not applicable in India. A fraudulent minor is not exempted from
liability.

37. Restraint of trade

Section 27 declares that an agreement in restraint of trade as void, because they

tend to create monopolies and discourage industry. Freedom of trade, business is
protected by the Indian Constitution under Article 19(1)(g). No person has such
right to take away by agreement. Every person is at liberty to carry on any trade at
his choice. Freedom of trade and business does not include right to carry on any
illegal or immoral trade or business.

Section 27: Every agreement by which any one is restrained from exercising a
lawful profession, trade or business of any kind, is to that extent void. Section 27
does not make any distinction between a total restraint and partial restraint.

e.g.: An agreement which says that A shall not carry on a trade anywhere in the
country during his lifetime amounts to total restraint. An agreement which says
that A shall not carry on a trade within a certain area or for certain duration
amounts to partial restraint.

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38. Revocation of acceptance

Generally acceptance is revocable. According to Section 5, an offeree may cancel

his acceptance by a speedier mode of communication. An acceptance may be
revoked at any time before the communication of the acceptance is complete as
against the acceptor, but not afterwards.

Illustration: A by letter, offers to sell his house to B and B accepts the offer by a
letter sent by post. B can revoke his acceptance by sending a telegram or fax, which
reaches earlier than his letter sent by post.

Anson’s Rule: Under English law an acceptance once made is irrevocable.

According to him ‘Acceptance is to offer what a lighted match is to a train of
gunpowder to do something which cannot be undone’. Once the letter of acceptance
is posted, it cannot be revoked even by speedier mode of communication. The
posting of the letter of acceptance create a binding contract, but Indian law permits
revocation of acceptance even after the letter of acceptance has been posted. When
a lighted match is applied to gunpowder no one can stop it from explosion. Thus
acceptance is like a lighted match, which, comes into contact with train of
gunpowder, it ripens into a contract in the same way as it explodes. Therefore
according to Anson,

1. There cannot be acceptance after revocation of offer.

2. When once acceptance is made, there can be no revocation.

39. Special Damages

When a contract is broken the party who suffers by such breach is entitled to
receive compensation for the any loss from the party who has broken the contract.
Special Damages are those which arise on account of the unusual circumstances
affecting the plaintiff. They are not recoverable unless the special circumstances
were brought to the knowledge of the defendant so that the possibility of the special
loss was in the contemplation of the parties.

40. Specific performance

Granting of specific performance is an equitable relief and based on the principles

incorporated under Section 20 of the Specific Relief Act, 1963. The grant of a decree
for specific performance is subject salutary guidelines. The following fundamental
principles are recognized and generally applied by the Courts.

1. The grading the decree of specific enforcement is purely discretion of the Court.
2. The remedy of specific enforcement is not granted in cases where compensation
is an adequate relief.
3. Courts do not grant the decree of specific enforcement in cases, which require
constant supervision of the Court.

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The specific performance of contract is an obligation enforceable by law. It is based

on the principle of equity.

Essentials: In order to obtain the decree of specific performance the following must
be fulfilled:
a) It is necessary to prove that are enforceable contract is in existence
b) It is necessary to prove that important provisions of the contract were certain
c) It is necessary to prove that the terms of the said agreement had been agreed or
d) It is necessary to prove that terms are settled orally but it need not be in writing
e) It is necessary that the contract in question should valid and enforceable

41. Standard Form of Contract

One party may draft a contract with standard terms, and on the same terms
contracts may be made with numerous persons. Generally such contracts are
found in the business and insurance activity.

e.g.: LIC may prepare a draft of insurance policy and enters into contract with a
large number of policy holders. The terms of the contract are prepared beforehand
by one of the parties and the other party does not have much say in the matter.
Thus several persons enter into the contract with those pre-drafted terms, which
cannot be changed.

Rules of Standard form of Contract

1. There should be a contractual document
2. There should not be misrepresentation
3. There should be a reasonable notice of the contractual terms
4. Notice should express the exemption of liability clause, if any
5. Strict interpretation of the exemption clause
6. The terms of contract should be reasonable
7. Enforcing terms of contract should not result in fundamental breach to contract
8. There should be liability towards third person
9. There should be Statutory protection

42. Standing offer

An offer, which is allowed to remain open for acceptance over a period of time, is
called as ‘standing offer’. It is also known as open offer or continuing offer. This offer
can be revoked just like any other offer.

e.g.: A offers to B to sell 100 tons of rice during 1st January to 31st December. This
is a standing offer. Tender for the supply of goods is a standing offer. As and when
an order is place on the basis of the tender that amounts to acceptance of the offer

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and results in a binding contract. Such offer may be revoked or withdrawn before
the order has been placed.

Bengal Coal Co. v. Homee Wadia & Co. ILR (1899) 24 Bom 97 The defendants
agreed to supply certain quantity of coal to the plaintiffs at an agreed price for a
period of 12 months, as may be required from time to time. The plaintiff placed
orders for the supply of some coal and it was supplied. Before the expiry of the said
period of 12 months, the defendants withdrew their offer to supply further coal and
refused to comply with the orders of the plaintiff. Plaintiff sued the defendants for
the breach of contract. The Court held that since it was a continuing offer to supply
coal, there was no contract between the plaintiff and the defendant. Therefore, the
defendants were not liable for the breach of contract.

43. Stranger to a contract

‘Privity’ means a relation between two parties that is recognized by law. ‘Privity of
Contract’ means ‘only those persons who are parties to the contract can enforce the
contract. A stranger to the contract cannot enforce even though the contract may
have been entered into for his benefit’.

English Law: In English law only parties to the contract can sue each other. A
stranger cannot enforce the claim.

Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd (1915) A.C. 847 at 853
The Dunlop Co., the manufacturers of Motorcar Tyres, sold some tyres to Dew &
Co. with an agreement that these tyres will not be sold below the list price.
Thereafter Dew & Co. sold tyres to Selfridge Co, with an agreement between Dew &
Co. and Selfridge & Co. that they shall observe conditions as to price and Selfridge
& Co also promised that they would pay to Dunlop Co. a sum of £ 5 for each tyre
sold below the list price. Selfridge & Co. sold some tyres below the list price but
refused to pay the promised amount to Dunlop Co. Dunlop Co. filed a suit to
recover loss. The House of Lords held that Dunlop Co. being a stranger could not
bring an action against Selfridge Co. because there was no contract between the
two parties.

Indian Law: The rules of privity of contract are equally applicable in India as in
England.

44. Tender of performance of contract

Section 38: The offer of performance of his part of the promise by a party to a
contract is called ‘tender’. The promisor must offer to perform his obligation under
the contract to the promise. This is called “tender of performance”.

Essentials of a valid tender:

1. It must be unconditional: Section 38(1)

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2. It must be made at proper time and place

3. Promisee must be given an opportunity to ascertain that the goods
4. A tender must be of the whole and not only of the part.
5. A tender of less than is actually due is no tender at all.
6. An offer of performance to one of the joint promises is a valid tender.
7. A tender of money must be made by actual production of the money.
8. Tender of the delivery of goods must be for the quantity and quality agreed
upon.
9. Tender must be made to the promisee or his authorized agent.

45. Undue influence

Undue influence means an influence by which a person is induced to act otherwise

than by his or her own free will. It is an improper use of any power by superior
authority over the mind of the other inferior party to secure consent for the
contract. It is also known as ‘equitable fraud.’ The dominating party uses his power
and position to obtain the consent of the weak party.

Essentials:
1. There must be relationship between parties
2. One party must be in a position to dominate the will of the other party
3. The dominant party must use his dominant position to obtain an unfair
advantage

The dominating party compels the weak party to enter into an agreement against
his will. Such agreement is said to be induced by undue influence. It is an
improper use of any power over other party to make him to enter into an
agreement.

e.g.: If an officer induces his subordinate to give his consent to an agreement

against his will, the officer is said to have employed undue influence over his
subordinate.

46. Unilateral contract

Unilateral contract is one where only one party has performed his obligation either
before or at the time of contract and the other party’s obligation is pending. Such
contract is also known as ‘Contracts with Executed Consideration’ or ‘One-Sided
Contracts’.

e.g.: A, a porter puts B luggage in the railway carriage. The contract is formed as
soon as the luggage is put in the carriage. It is now B has duty to pay charges to
the porter. This is a unilateral contract.

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47. Void Contract

Section 2(g): An agreement not enforceable by law is called void agreement. The
contract based on such agreement is void.

e.g.: an agreement by a minor, an agreement without consideration, an agreement

in restraint of marriage, an agreement in restraint of trade etc.

48. Voidable agreements

Section 2(i): An agreement, which is enforceable by law at the option of one or more
of the parties, but not at the option of the other or others is called ‘voidable
contract’. Thus, avoidable contract is one, which could be avoided by one of the
parties to the contract at his choice. If a party does not avoid the contract, it
becomes valid contract. If a party wants to avoid the contract, it becomes void
contract. Therefore, contract entered by coercion, fraud, misrepresentation or
undue influence is called ‘voidable contract’. Only the sufferer has choice either to
continue or avoid the contract. The other party does not have any such right.

Illustration: A intending to deceive B falsely represents that five hundred tons of

indigo are made annually at A’s factory and thereby induces B to buy the factory.
The contract has been caused by fraud and B may continue or avoid the contract. If
he continues it is valid, it he avoids it is voidable.

49. Wagering agreements

Wager means bet or gamble. Wager is an agreement to pay money or money worth
on happening or non-happening of a specified uncertain event. The contract Act
does not define a wagering agreement. According to Section 30, wager agreements
are void.

e.g.: In a cricket match A tells B that ‘India will win’. B challenges the statement of
A. They bet with each other over the result of the match. This is a wager by
agreement.

A wager generally made on a future event. Each partly stands equally either to win
or lose the bet. It is a mutual agreement (Carllil v. Carbolic Smoke Ball Co.
(1892) 2 QB 484 at PP 490-91) Therefore it is essential to a wagering contract that
each party may under it either win or lose, whether he will win or lose being
dependent on the issue of the event, and, therefore, remaining uncertain until that
issue is known.

Essentials
1) The parties must have opposite views on an uncertain event.
2) Mutual chances of win or lose or Mutual chances of Gain or loss.
3) Neither party to have control over the event.

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4) The parties have no other interest except winning or losing of bet.

5) There must be promise to pay money or money’s worth
6) Promise must be dependent upon happening or non-happening of future event.
7) The gain of one party must be the loss of the other.

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CASE COMMENTS

1. Rajendra a violinist entered into contract to render a programme in the theatre

belonging to Kesav. Afterward Rajendra met with an accident and was not able
to perform the programme. As there any remedy to Kesav? Explain the
Principles.
1 Facts of the Case / Rajendra a violinist entered into contract to render a
Statement of Facts programme in the theatre belonging to Kesav. Afterward
Rajendra met with an accident and was not able to
perform the programme. Kesav filed a suit against
Rajendra to recover damages for breach of contract.
2 Related Topic This problem is related to Impossibility of performance
and doctrine of frustration.
3 Framing of Issues 1. Whether Rajendra should pay the damages to Kesav or
not?
2. Whether Kesav can recover the amount from
Rajendra?
3. Whether this contract can be enforceable against
Rajendra?
4 Answering the Issues 1. Answering to the first issue Rajendra need not pay the
damages to Kesav.
2. Answering to the second issue Kesav can’t recover the
amount from Rajendra.
3. Answering to the third issue this contract can’t enforce
against the Rajendra.
5 Provision of Law Impossibility of Performance and frustration:
Impossibility of Performance and frustration means
disappointment of a hope. According to Section 56, an
agreement to do an act impossible in itself is void.
Essentials.
1. There must be a valid and subsisting contract
between the parties.
2. There must be some part of contract yet to be
performed.
3. Subsequently the contract must become impossible to
be performed.
Section 56 cannot be applied to a case of self-induced
frustration.
Specific grounds of Frustration
1. Destruction of Subject Matter: It is impossible to
perform the contract when the subject matter is
destroyed or has ceased to exist.
2. Change of circumstances: It may become impossible
to perform the contract due to the change of
circumstances. In such case the Courts will not enforce
the contract
3. Non-occurrence of contemplated event: Sometimes

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the performance of a contract remains entirely possible,

but owing to the non-occurrence of an event it becomes
impossible.
4. Death or incapacity of party: Where the nature or
terms of the contract require personal performance by
the promisor, his death or incapacity puts an end to the
contract.
5. Government or legislative intervention: Sometimes
the performance of a contract becomes impossible due to
the legislative or administrative interaction.
6. Intervention of War: Sometime intervention of war
or warlike conditions makes impossible for the
performance of contract.
6 Relevant Case laws Robinson v. Davison (1861-73) AL ER Rep 699 The
defendant’s wife a pianist agreed to give concert on a
specified day. On the morning of the day of concert she
informed the plaintiff that she was too ill to attend the
concert. The concert has to be postponed and the
plaintiff suffered loss. The plaintiff action for
compensation was failed. The Court excused her from
playing piano and held that the contract was clearly
subject to the condition of her being well enough to
perform.
Howell v. Coupland (1876) 1 QBD 258 (CA) The
defendant contracted to sell a specified quantity of
potatoes to be grown on his farm, but failed to supply
them as the crop was destroyed by a decease. Therefore,
neither party liable if the performance becomes
impossible.
Krell v. Henry (1903) All ER Rep 20) The parties
contracted to him a room to review a proposed
coronation procession was held to have frustrated when
the procession was postponed.
Shiam Sunder v. Durga AIR 1966 All 185 The seller
agreed to sell his hand and was about to execute a sale-
deed. Meanwhile the Court declared that the seller was
not the true owner of that land. The Court held that the
contract had become impossible of performance.
7 Ratio Decidendi The reason for the decision is the Rajendra met with an
accident so he can’t perform the contract
8 Decision The contract was discharged under the doctrine of
frustration Keshav can’t file a suit against Rajendra.
9 Conclusion It was concluded that the doctrine of frustration is based
on the maxim Lex non cogit ad impossibility which means
“the law does not compel the impossible’.

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2. Naidu advertised in newspapers that he would give Rs.1, 00,000 to anyone who
brings back his missing son. Ramana found that boy and handed over that boy
to Naidu and did not claim the reward as he had no knowledge about the
advertisement at that time. Later on, Ramana cause to know about the reward
and claimed for the reward from Naidu. Naidu refused to pay. Should Naidu
pay? Explain the principles.

1 Facts of the Case / Naidu advertised in newspapers that he would give

Statement of Facts Rs.1,00,000 to anyone who brings back his missing son.
Ramana found that boy and handed over that boy to
Naidu and did not claim the reward as he had no
knowledge about the advertisement at that time. Later
on, Ramana know about the reward and claimed for the
reward from Naidu. Naidu refused to pay.
2 Related Topic This problem is related to the communication of offer to
offeree.
3 Framing of Issues 1. Whether the offer is valid offer or not?
2. Whether Ramana should claim the reward from
Naidu?
3. If Ramana knows about the offer can whether Naidu
should pay the money to Ramana?
4 Answering the Issues 1. Answering to the first issue the offer is a general offer
and it is a valid offer.
2. Answering to the second issue Ramana can’t claim
the reward from naidu.
3. Answering to the third issue Ramana can claim
reward if he knows before the tracing of missing boy
5 Provision of Law Offer: Offer is a starting point in the formation of a
contract. It is a willingness to do or not to do something.
Offer is made with a view to obtain the acceptance of the
other party. The person making the proposal is called
the proposer or offeror or promisor. The person to the
proposal is made is called the offeree or promisee. e.g. A
offers to sell his house to B for Rs.10 Lakhs. This is an
offer. A is the offeror and B is the offeree. When a
statement is made without any intention to obtain the
assent that cannot be called as proposal. The offer may
or may not be accepted. An offer can be withdrawn
before it is accepted.
Essentials of an Offer
1. It may be express or implied: Offer may be express
or implied. It may be either oral or written. An offer
made by words, oral or written is called express offer.
Offer made by conduct is called implied offer
2. Intention to create legal relations: Offer should be
made with an intention to create legal relationship. The
social engagements are generally agreed without an
intention to create legal obligations. Thus, an agreement

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to go for a walk, or to go to a cinema, or to go for a dinner

cannot be enforced in a Court of law. Thus, any
agreements, which are not intended to create legal
relationship, are not enforceable.
3. The terms must be clear and certain: The terms of
offer must be very clear and definite. They must not
vague.
4. It must be communicated to the offeree: The offer
can be accepted only when it is communicated to the
offeree. According to Section 4 the communication of a
proposal is complete when it comes to the knowledge of
the person to whom it is made.
5. It may be a specific or general: Specific offer is
made to a particular person. General offer made to the
public at large.
6 Relevant Case laws Lalman Shukla v. Gauri Dutt (1913) 11 All LJ 489 The
defendant’s nephew ran away from home. The plaintiff,
who was the defendant’s servant, was sent to search the
missing boy. While the servant left in search of the boy,
the defendant announced a reward of Rs. 501/- to anyone
who might find out the boy. The plaintiff, who was
ignorant of this award, was successful in searching the
boy. Later he came to know about the reward and filed a
claim suit against the defendant. The Court held that
since the plaintiff was ignorant of offer of reward, his act
of bringing the boy was not an acceptance. Therefore, the
plaintiff was not entitled to claim the reward.
Williams v. Carwardine (1833) 11 All L.J. 489, the
plaintiff, who knew that reward had been announced to
be given to anyone who gave information leading to the
conviction of an assailant for murder, gave the necessary
information. While giving information, the plaintiff
mentioned that she had given the information ‘to ease her
conscience’. At that time, she did not intend to claim the
reward. She, however, subsequently brought an action to
claim the same. It was held that since the offer had been
accepted with its knowledge, there was a valid contract
and, therefore, she was entitled to claim the reward.
7 Ratio Decidendi The reason for the decision is the plaintiff was ignorant
of the offer of reward. So, he can’t claim.
8 Decision Ramana act of bringing the lost boy did not amount to
acceptance of the offer, and therefore, he was not
entitled to claim the reward.
9 Conclusion It was concluded that an offer cannot be accepted unless
and until it has been brought to the knowledge of the
person to whom it is made.

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3. Raghu told Raju that he would give Rs.10, 000 if it rains tomorrow. Raju told to
Raghu that he would give Rs.10, 000 if it does not rain. The next day it rained.
Raju demanded money and Raghu refused. Decide. Explain the reasons with
principles.

1 Facts of the Case / Raghu told Raju that he would give Rs.10, 000 if it rains
Statement of Facts tomorrow. Raju told to Raghu that he would give Rs.10,
000 if it does not rain. The next day it rained. Raju
demanded money and Raghu refused.
2 Related Topic This problem is related to wager contract.
3 Framing of Issues 1. What is the nature of the contract?
2. Whether the contract is a valid or not?
3. Whether Raju can claim the money from Raghu?
4 Answering the Issues 1. Answering to the first issue this contract is a wager in
nature.
2. Answering to the second issue the contract is not a
valid.
3. Raju can’t claim the money from Raghu
5 Provision of Law Wager Agreement: Wager means bet or gamble. Wager
is an agreement to pay money or money worth on
happening or non-happening of a specified uncertain
event. The contract Act does not define a wagering
agreement. According to Section 30, wager agreements
are void. e.g. In a cricket match A tells B that ‘India will
win’. B challenges the statement of A. They bet with
each other over the result of the match. This is a wager
by agreement.
Each partly stands equally either to win or lose the
bet. It is a mutual agreement. Therefore, it is essential
to a wagering contract that each party may under it
either win or lose, whether he will win or lose being
dependant on the issue of the event, and, therefore,
remaining uncertain until that issue is known.
There should be a chance of anyone party winning and
the other losing, on the determination of the event one
way or the other. In a wagering contract neither of the
contracting parties have any other interest in that
contract than the sum or stake he will so win or lose,
and there is no other real consideration for the making of
such contract by either of the parties.
Essentials
1. The parties must have opposite views on an uncertain
event.
2. Mutual chances of win or lose or Mutual chances of
Gain or loss.
3. Neither party to have control over the event.
4. The parties have no other interest except winning or
losing of bet.
5. There must be promise to pay money or money’s worth

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6. Promise must be dependent upon happening or non-

happening of future event.
7. The gain of one party must be the loss of the other.
Though a wagering contract is void, transactions
incidental or collateral to a wagering transaction are not
void.
Prize Money on lottery tickets: Lottery means a
scheme for distribution of prizes by draw of lots or by
any other procedure which depends on chance only. The
agreement to pay prizes on lottery is an agreement by
way of wager and, therefore, void under section 30 of
Contract Act.
Speculative Transactions: One of the forms of wagering
contract is an agreement to pay differences only, rather
than actually making or taking the delivery of the goods.
Although in a contract, the parties may agree about the
sale of goods at a stated price at a future date, but their
real intention may not be supply of goods but only the
payment of difference in the price by one party to the
other, depending on the rise or fall of market. Such
agreement is wagering.
6 Relevant Case laws Diggle v. Hige (1877) 2 Ex D.422, each one of the two
parties in a walking match deposited 200 ponds with a
stakeholder with the condition that the loser would
forfeit the amount of 200 pounds paid by him. The
agreement was held to be a wagering one.
Subhash Kumar Manwani v. State of M.P. AIR 2000
MP 109, it has been held in this case that an agreement
to pay prize money on a lottery ticket is a wagering
agreement and, therefore, such agreement is void under
sec.30 of the contract act.
Shekharchand Jain v. Ramnarayan (1977) M.P.W.N
118, the question was regarding recovery of prize on a
State lottery ticket. It was held that though a State
lottery is not illegal, the same is however in the nature of
wager, and therefore, void.
Badridas Kothari v. Meghraj Kothari AIR 1967
Cal.25, A and B entered into wagering transactions in
shares. B became indebted to A. B then executed a
promissory note in favour of A to pay the amount as well
as interest thereon. It was held that A could not recover
the amount.
7 Ratio Decidendi Wagering agreements are not recognized by contact act
and the same was not enforceable by law.
8 Decision Raju can’t recover the amount from Raghu because the
agreement in wager in nature
9 Conclusion Wagering contracts are betting in nature, betting
agreement are illegal, wager agreements are affecting the
society at large

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 Contract Law-I - Short Notes & Case Comments

4. A agrees to sell pen worth Rs. 1,000/- to B for Rs. 10/- at the point of knife. A
was threatened with knife to do so by “Z’. Is the agreement valid?

1 Facts of the Case / A agrees to sell pen worth Rs. 1,000/- to B for Rs. 10/-
Statement of Facts at the point of knife. A was threatened with knife to do
so by “Z’.
2 Related Topic This problem is related to contracts entered under threat
or coercion.
3 Framing of Issues 1. Whether this agreement is a valid?
2. Whether all contracts need sufficient consideration?
3. Whether A is having any remedy?
4 Answering the Issues 1. Answering to the first issue the agreement is not a
valid abut voidable contract.
2. Answering to the second issue contract need not be
entered with equal or sufficient consideration but it
should be moved with free consent.
3. Answering to the third issue A can approach the
court and cancel the contract on the ground of
coercion.
5 Provision of Law Coercion means compulsion or force: Section 15 defines
coercion. “Coercion is the committing or threatening to
commit, any act forbidden by the Indian Penal code, or the
unlawful detaining, or threatening to detain, any property,
to the prejudice of any person whatever, with the intention
of causing any person to enter into an agreement.” In
English law coercion is called Duress or Menace. The
law commission of India in its 13th report on Indian
contract Act has recommended including the other penal
laws also in the definition of Section 15.
Essentials
1. Committing or threatening to commit any act
forbidden by IPC: for coercion, it is not necessary
that the Indian Penal Code with a view to obtaining
the consent of the other person to an agreement, the
consent in such a case is deemed to have been
obtained by coercion.
2. Unlawfully detaining or threatening to detain any
property: According to Section 15, coercion could
also be caused by the unlawful detaining, or
threatening to detain, any property, to the prejudice
of any person whatever, with the intention of causing
any person to enter into an agreement.
3. The act must be done with intention of causing
plaintiff to enter into agreement: the act should be
done only with the intention to the casing to enter into
agreement which makes prohibited under Indian Penal
Code.
The acts of coercion should be done with the intention of

P. Chandra Sekhar LL.M., SET., NET. - 29 -

 Contract Law-I - Short Notes & Case Comments

causing the other person to enter into an agreement.

The party to the contract need not cause the coercion,
even it may be caused by a third party. e.g. threat to
kill, rape, hurt, attempt to commit suicide.
The contracts entered under coercion or threats are
voidable contracts and the y can challenge in a court of
law. If voidable contracts are not challenged in a court of
law, it is a valid contract.
6 Relevant Case laws Rnaganayakamma v. Alwar Setti I.L.R (1889) 13
Mad 214. The question before the Madras High Court
was regarding the validity of the adoption of a boy by a
widow, aged 13 years. On the death of her husband, the
husband’ dead body was not allowed to be removed from
her house for cremation, by the relatives of the adopted
boy until she adopted the boy. It was held that the
adoption was not binding on the widow as her consent
had been obtained by coercion.
Chikkam Ammiraju v. CHikkam Seshamma I.L.R.
(1918) 41 Mad 33., the question before the Madras High
Court was that whether coercion could be caused by a
threat to commit suicide. In this case A, a Hindu, by a
threat of suicide, induced his wife and son to execute a
release deed in favour of A’s brother in respect of certain
properties claimed as their own by the wife and the son.
The question before the court was whether threat to
commit suicide could be considered to be an act
forbidden by the Indian Penal Code.
Ex1: A threatens to kill B’s son if he does not sell his
house to him. B agrees to sell such threat amounts to
coercion and such consent is not free consent.
Ex2: ‘A’ an outgoing agent refuses to hand over the
account books to the new agent until the Principal ‘B’
executes release in his favour, it is a coercion.
7 Ratio Decidendi Contract must be entered by the parties with free
consent, in this problem A agrees to sell his pen only by
fear.
8 Decision A can approach the court for making this contract is
invalid
9 Conclusion It was concluded that the contracts which was entered
by the parties under coercion, undue influence, fraud,
misrepresentation can be challenged in a court of law
because these contracts are voidable contracts in nature.

P. Chandra Sekhar LL.M., SET., NET. - 30 -