Unit I — Nature & Formation of Contract
1.1 What is a Contract?
A contract is an agreement enforceable by law. The Indian Contract Act, 1872 (ICA) governs contracts in India. It is the foundational statute for all commercial transactions.
📜 Statutory Definitions
Section 2(e): "Every promise and every set of promises, forming the consideration for each other, is an agreement."Section 2(h): "An agreement enforceable by law is a contract."
Formula: Contract = Agreement + Enforceability by Law
Agreement = Offer + Acceptance
⚖️ Agreement vs. Contract
| Basis | Agreement | Contract |
|---|---|---|
| Definition | Promise + consideration for each other | Agreement + enforceability by law |
| Scope | Wider — includes social, moral promises | Narrower — only legally enforceable |
| Example | Meeting friends for dinner | Sale deed for property |
| Relationship | All contracts are agreements | Not all agreements are contracts |
1.2 Essentials of a Valid Contract — Section 10
📜 Section 10 — What agreements are contracts
"All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void."
A valid contract must satisfy ALL of the following essentials:
- Offer and Acceptance — Valid proposal and its absolute acceptance
- Intention to create legal relations — Parties must intend legal consequences
- Lawful Consideration — Something of value exchanged (S.2(d))
- Capacity of Parties — Majority, soundness of mind, not disqualified by law (S.11)
- Free Consent — Not obtained by coercion, undue influence, fraud, misrepresentation or mistake (S.14)
- Lawful Object — Not forbidden by law, not immoral, not against public policy (S.23)
- Not expressly declared void — Sections 26–30 declare certain agreements void
- Certainty and Possibility of Performance — Terms must be clear and performance possible (S.29, 56)
- Legal Formalities — Certain contracts require writing, registration, attestation
💡 Exam Tip
Mnemonic: "OFFER CLIP" — Offer/Acceptance, Free consent, Free from void, Enforceable, Reasonable certainty, Competent parties, Lawful consideration, Intention to create legal relations, Possibility of performance.
Unit II — Offer & Acceptance
2.1 Offer (Proposal)
📜 Section 2(a) — Proposal Defined
"When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal."
Essentials of a Valid Offer:
- Must be communicated to the offeree (S.3, 4)
- Must be certain and definite — not vague
- Must contemplate legal relations
- Must be distinguished from invitation to offer (tender/advertisement)
- May be express (words) or implied (conduct)
- May be specific (to one person) or general (to the world at large)
⚖️ Leading Case — General Offer
Carlill v. Carbolic Smoke Ball Co. (1893): Advertisement offering £100 reward to anyone who used the smoke ball and still contracted influenza was a valid general offer. Acceptance by performance (using ball + contracting flu) created a binding contract. The principle: a general offer can be accepted by any person who fulfils its conditions without prior communication of acceptance to offeror.
⚖️ Offer vs. Invitation to Offer (Invitation to Treat)
| Feature | Offer | Invitation to Offer |
|---|---|---|
| Nature | Definite and certain willingness to contract | Request to make offers; negotiation stage |
| Effect | Accepted → binding contract | Leads to offer which may be accepted |
| Examples | Written quote to sell at fixed price | Catalogue, advertisement, menu card, tender |
| Case | Offer by specific letter | Harvey v. Facey — telegram re land not an offer |
2.2 Termination / Revocation of Offer
📜 Section 6 — Revocation of Proposal
An offer is revoked by: (1) notice of revocation by offeror before acceptance; (2) lapse of prescribed time or reasonable time; (3) failure of acceptor to fulfil condition precedent; (4) death or insanity of offeror (if known to acceptor before acceptance).
⚖️ Leading Case — Revocation
Byrne v. Van Tienhoven (1880): Revocation by post takes effect only when received by the offeree, not when posted. Acceptance by telegram was valid as revocation letter had not been received yet.
2.3 Acceptance
📜 Section 2(b) — Acceptance
"When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise."
Essentials of Valid Acceptance:
- Must be absolute and unqualified (S.7) — conditional acceptance = counter-offer
- Must be expressed in prescribed manner or reasonable manner (S.7)
- Must be communicated to offeror (S.3, 4)
- Must be made while offer subsists
- Mental acceptance insufficient — must be expressed/communicated
📜 Section 4 — Communication: When Complete
Offer: Complete when it comes to the knowledge of the person to whom it is made.Acceptance (as against proposer): Complete when put in course of transmission (posting).
Acceptance (as against acceptor): Complete when it comes to the knowledge of the proposer.
💡 Exam Tip — Postal Rule
Postal Rule: Acceptance is complete (as against proposer) when the letter of acceptance is posted — even before the proposer receives it. But this rule applies only when post is the usual/authorized mode of communication.
Unit III — Consideration
3.1 Definition of Consideration
📜 Section 2(d) — Consideration
"When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
Rules Governing Consideration:
- Must move at the desire of the promisor — Act done voluntarily or at third party's request ≠ consideration
- May move from promisee OR any other person (unlike English law where it must move from promisee only)
- May be past, present or future — Indian law accepts past consideration (unlike English law)
- Must be real and not illusory — Legally sufficient, not necessarily adequate
- Need not be adequate — Courts will not weigh the quantum of consideration (S.25 Explanation 2)
- Must not be unlawful — Must be legal
⚖️ Indian Law vs. English Law on Consideration
| Point | Indian Law | English Law |
|---|---|---|
| Past Consideration | Valid (S.2(d) explicitly includes) | Generally not valid |
| Stranger to Consideration | Consideration may move from third party | Must move from promisee only |
| Adequacy | Not required, court accepts any real consideration | Not required, but must be real |
3.2 Exceptions to "No Consideration, No Contract" (Section 25)
📜 Section 25 — Agreements without Consideration (Valid Exceptions)
An agreement without consideration is void except when:
- (1) It is in writing and registered, made on account of natural love and affection between parties in near relation
- (2) Promise to compensate for past voluntary act — person has done something the promisor was legally compellable to do
- (3) Promise to pay time-barred debt — in writing signed by debtor or his authorized agent
⚖️ Key Case — Stranger to Contract
Dutton v. Poole (1677) / Tweddle v. Atkinson (1861): English rule — a stranger to a contract cannot sue on it.Indian position: A stranger to the contract cannot sue, BUT a stranger to the consideration CAN sue (beneficiary under a trust, family settlement, etc.). Key case: M.C. Chacko v. State Bank of Travancore — third party beneficiary can enforce in India under certain conditions.
Unit IV — Capacity to Contract
4.1 Who is Competent to Contract
📜 Section 11 — Competency
"Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject."
4.2 Minor's Contract
Age of majority = 18 years (under Indian Majority Act, 1875); 21 years if court-appointed guardian exists.
⚖️ Landmark Case — Mohori Bibee v. Dharmodas Ghose (1903)
The Privy Council held: A contract with a minor is absolutely void, not merely voidable. Minor mortgaged property for a loan. Held: since minor lacked capacity, mortgage deed was void. Money advanced could not be recovered even on equitable grounds. This remains the governing law in India.
Key Rules on Minor's Agreement:
- Void ab initio — minor's contract is void from inception, not voidable
- No estoppel against minor — minor cannot be estopped even if he misrepresented his age
- No ratification — after attaining majority, cannot ratify a void contract
- Can be beneficiary — minor can enforce contract made for his benefit (e.g., insurance)
- Necessaries — person supplying necessaries to minor can recover from minor's property (S.68) — quasi-contractual liability
- Minor as agent — minor can act as agent, binding the principal but not himself
- Minor as partner — cannot be a partner but can be admitted to benefits of partnership (S.30 IPA)
4.3 Persons of Unsound Mind
📜 Section 12 — Sound Mind
"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 judgement as to its effect upon his interests."
Contracts during lucid intervals are valid; contracts during periods of unsoundness are voidable at the option of the person of unsound mind.
Unit V — Free Consent & Vitiating Factors
5.1 Consent and Free Consent
📜 Sections 13 & 14
S.13: "Two or more persons are said to consent when they agree upon the same thing in the same sense." (Consensus ad idem)S.14: Consent is said to be free when it is not caused by: (1) Coercion (S.15), (2) Undue Influence (S.16), (3) Fraud (S.17), (4) Misrepresentation (S.18), (5) Mistake (S.20, 21, 22).
5.2 Coercion — Section 15
📜 Section 15 — Coercion
Coercion = committing or threatening to commit any act forbidden by IPC, OR unlawful detaining/threatening to detain any property, with intent to cause any person to enter into an agreement.
Effect: Contract voidable at option of party whose consent was so caused (S.19). Money paid under coercion can be repaid (S.72).
Key Point: Coercion need not be directed at the contracting party — it may be against a third party. Threat to commit suicide is coercion (Ranganayakamma v. Alwar Setti, 1889).
5.3 Undue Influence — Section 16
📜 Section 16 — Undue Influence
A contract is caused by undue influence where: (1) the relations between the parties are such that one is in a position to dominate the will of the other, AND (2) uses that position to obtain an unfair advantage.
Relationships where dominance is presumed: parent-child, guardian-ward, doctor-patient, solicitor-client, religious advisor-devotee, etc.
Effect: Voidable — court may set it aside on terms as it deems just (S.19A).
Distinction from Coercion: Coercion involves criminal act/unlawful detainer; Undue influence involves moral/psychological domination in a pre-existing relationship.
5.4 Fraud — Section 17
📜 Section 17 — Fraud
Fraud includes: (1) false suggestion of fact known to be untrue; (2) active concealment of fact; (3) promise made without intention of performing; (4) any other act to deceive; (5) any act declared fraudulent by law.
"Mere silence is not fraud" — except where there is a duty to speak, or silence is equivalent to speech.
Effect: Voidable at option of defrauded party + right to claim damages (S.19).
Exceptions to "Silence ≠ Fraud": Contracts uberrimae fidei (insurance, partnership, family settlements) — duty to disclose material facts.
5.5 Misrepresentation — Section 18
📜 Section 18 — Misrepresentation
Includes: (1) positive assertion of fact untrue though the person believed it true; (2) breach of duty which gains advantage without intent to deceive; (3) causing party to make a mistake as to substance of the thing contracted about.
⚖️ Fraud vs. Misrepresentation
| Point | Fraud (S.17) | Misrepresentation (S.18) |
|---|---|---|
| Intention | Deliberate intent to deceive | No intent to deceive; honest belief |
| Knowledge | Known to be false by maker | Believed to be true by maker |
| Damages | Rescission + damages both available | Only rescission; no damages |
| Limitation period | Runs from discovery of fraud | Standard limitation applies |
5.6 Mistake — Sections 20–22
- Bilateral Mistake of Fact (S.20): Both parties under mistake as to matter of fact essential to agreement → Contract void
- Unilateral Mistake of Fact (S.22): Only one party in mistake → Contract NOT voidable (buyer's duty of vigilance — caveat emptor)
- Mistake of Law (S.21): Mistake of Indian law → Contract not voidable. Mistake of foreign law treated as mistake of fact.
💡 Effect of Vitiating Factors — Summary
Void: Bilateral mistake of fact (S.20)Voidable: Coercion (S.15), Undue Influence (S.16), Fraud (S.17), Misrepresentation (S.18)
Not affected: Unilateral mistake of fact (S.22), Mistake of Indian law (S.21)
Unit VI — Lawful Object & Consideration
6.1 When Object/Consideration is Unlawful
📜 Section 23 — Unlawful Object/Consideration
Object or consideration is unlawful if it is: (1) forbidden by law; (2) would defeat any provision of law; (3) fraudulent; (4) involves injury to person/property of another; (5) immoral; (6) opposed to public policy.
6.2 Agreements Opposed to Public Policy
- Trading with enemy
- Stifling prosecution (compounding non-compoundable offences)
- Maintenance and champerty (funding litigation for share in proceeds)
- Defrauding creditors
- Agreement in restraint of legal proceedings (S.28)
- Agreements in restraint of marriage (S.26)
- Agreement in restraint of trade (S.27) — with exceptions
6.3 Agreements in Restraint of Trade — Section 27
📜 Section 27 — Restraint of Trade
"Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."
Exception: Sale of goodwill — seller may agree not to carry on similar business within specified local limits, so long as buyer or successor carries on like business in that area.
⚠️ Exceptions to Void Agreements (S.27)
- Sale of goodwill with reasonable restraint
- Partnership agreements — restraint during partnership (S.11(2) IPA)
- Service agreements — reasonable restrictions during employment are valid; post-employment restrictions are void
6.4 Wagering Agreements — Section 30
📜 Section 30 — Wagering Agreements
Agreements by way of wager are void. No suit shall lie for recovering anything alleged to be won on any wager or for entrusting to a person any money to become payable under a wager.
Exceptions: Horse-race prizes (if >₹500), crossword competitions (if skill-based), lotteries authorised by state.
Unit VII — Void & Voidable Contracts
7.1 Classification of Contracts
⚖️ Types of Contracts
| Type | Definition | Effect |
|---|---|---|
| Valid | Satisfies all essentials of S.10 | Fully enforceable |
| Void Agreement (S.2(g)) | Not enforceable by law at all | No legal effect; cannot create rights |
| Voidable Contract (S.2(i)) | Enforceable at option of one party but not other | Stands until rescinded; rescinding party gets S.64 relief |
| Void Contract (S.2(j)) | Valid when made, subsequently becomes void | Ceases to be enforceable; like void agreement |
| Unenforceable | Valid but lacks required formality | Cannot be enforced in court but not void |
| Illegal Agreement | Forbidden by law | Void + collateral transactions also void |
7.2 Void Agreements under ICA
- S.24 — Object/consideration partly unlawful (if inseparable)
- S.25 — Agreement without consideration (subject to exceptions)
- S.26 — Restraint of marriage
- S.27 — Restraint of trade
- S.28 — Restraint of legal proceedings
- S.29 — Uncertain/ambiguous agreements
- S.30 — Wagering agreements
- S.56 — Agreement to do impossible act
Unit VIII — Performance of Contracts
8.1 Obligation to Perform
📜 Section 37 — Obligation to Perform
"The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law."
8.2 Who Must Perform?
- Promisor personally — where contract requires personal skill/taste/qualification
- Agent of promisor — where personal performance not required; agent may perform
- Legal representatives — on death of promisor (for non-personal contracts)
- Third party — if promisee accepts performance from third party, cannot later sue promisor (S.41)
8.3 Time and Place of Performance
- S.46: No time specified → performance at reasonable time; time is never the essence unless contract so stipulates
- S.47: Application for performance — promisor must apply to promisee at proper place/time for performance
- S.55: Time of essence — if so specified, failure entitles other party to void contract; if not essence, entitles only to damages
8.4 Reciprocal Promises
- Simultaneous performance (S.51): Each party must perform simultaneously if possible
- Conditional obligation (S.52): Order of performance as stipulated in contract
- Effect of default (S.54): If promisor who ought to perform first defaults, the other party need not perform
8.5 Appropriation of Payments — Section 59–61
- S.59: Express appropriation — debtor may direct which debt payment is to be applied to
- S.60: Implied appropriation — creditor may apply payment to any debt, including time-barred debt
- S.61: Neither party appropriates — payment applied in discharge of debts in order of time; if statute-barred, proportionately
💡 Exam Tip — Clayton's Case
Clayton's Case (1816): In banking context (running account), the first credit entry discharges the first debit. First money in, first money out rule. This is applied in current account appropriation.
Unit IX — Discharge of Contracts
9.1 Modes of Discharge
- By Performance (S.37): Actual or attempted performance (tender)
- By Agreement/Consent:
- Novation (S.62) — new contract substituted; old discharged
- Rescission (S.62) — cancellation of contract
- Alteration (S.62) — change in terms with consent of all parties
- Remission (S.63) — promisee accepts lesser performance
- Waiver — abandonment of right by party
- By Impossibility (S.56): Doctrine of frustration — subsequent impossibility
- By Operation of Law: Merger, insolvency, material alteration of written contract
- By Breach: Actual breach or anticipatory breach
- By Lapse of Time: Limitation Act bars remedy but does not discharge contract
9.2 Doctrine of Frustration — Section 56
📜 Section 56 — Impossibility of Performance
Para 1: Agreement to do impossible act = void from beginning.Para 2: Contract becomes void when performance subsequently becomes impossible or unlawful (supervening impossibility).
Para 3: Party who knew of impossibility but induced other to enter contract must pay compensation.
Grounds for Frustration:
- Destruction of subject matter (Taylor v. Caldwell, 1863)
- Change in circumstances making purpose impossible (Krell v. Henry, 1903 — Coronation cases)
- Personal incapacity in personal service contracts
- Government/legislative intervention making performance illegal
- Outbreak of war
⚠️ Frustration NOT Available When:
- Difficulty or hardship increases (Satyabrata Ghose v. Mugneeram Bangur, 1954 SC)
- Supervening event was within reasonable contemplation of parties
- Party's own default causes impossibility
- Commercial frustration alone (commercial profit disappears)
⚖️ Key Indian Case — Frustration
Satyabrata Ghose v. Mugneeram Bangur (1954 SC): Section 56 ICA embodies the same principle as English doctrine of frustration but the word "impossible" in S.56 need not mean absolute physical impossibility — if performance becomes "impracticable" or "useless" having regard to the object and purpose of the parties, the contract can be treated as dissolved. However, mere difficulty or greater expense does not frustrate a contract.
Unit X — Breach & Remedies
10.1 Types of Breach
- Actual Breach: At time of performance — either party refuses/fails to perform
- Anticipatory Breach: Before performance due — party expressly renounces or disables himself from performing (S.39)
📜 Section 39 — Anticipatory Breach
Where a party to a contract has refused to perform or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct his acquiescence in its continuance.
10.2 Remedies for Breach
- Damages (S.73): Compensation for loss caused by breach
- Suit for specific performance: Specific Relief Act, 1963
- Suit for injunction: Restraining party from breach
- Quantum meruit: Recover for work done (S.70)
- Rescission (S.75): Right to rescind + compensation
10.3 Damages — Section 73
📜 Section 73 — Compensation for Breach
"When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken it, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it."
"Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach."
⚖️ Rule in Hadley v. Baxendale (1854) — Test for Remoteness
Damages recoverable for breach: (1) Direct/General damages — flowing naturally from breach in usual course of things; (2) Special/Consequential damages — where special circumstances communicated to defendant at time of contract, giving rise to reasonable contemplation of special loss.
Indian application (S.73): Codifies Hadley v. Baxendale — the two-limb test is embodied in "naturally arose" (limb 1) and "parties knew... likely to result" (limb 2).
10.4 Liquidated Damages and Penalty — Section 74
📜 Section 74 — Liquidated Damages / Penalty
Whether the sum stipulated is a penalty or liquidated damages, the party complaining of breach is entitled to receive reasonable compensation not exceeding the amount named.
Unlike English Law: English law distinguishes liquidated damages (enforceable) from penalty (unenforceable). Indian law does NOT make this distinction — S.74 provides a uniform rule that the party can only recover what the court considers reasonable (up to the stipulated amount).
Unit XI — Quasi-Contracts
11.1 Nature of Quasi-Contracts
Quasi-contracts are not true contracts — there is no agreement between parties. They are obligations imposed by law to prevent unjust enrichment. The ICA calls them "certain relations resembling those created by contract."
11.2 Heads of Quasi-Contract
- S.68 — Necessaries supplied to incapable person: Person who supplies necessaries to minor/lunatic/person unable to contract → claim against property of such person
- S.69 — Payment by interested person: A pays money which B was bound to pay → A entitled to be reimbursed by B
- S.70 — Obligation of person enjoying benefit of non-gratuitous act: Person lawfully does something for another (not intending it as gift) → other must compensate (quantum meruit)
- S.71 — Responsibility of finder of goods: Finder of lost goods → same responsibilities as bailee
- S.72 — Money paid by mistake or under coercion: Must be repaid or returned
📝 Illustration — S.70 Quantum Meruit
A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. B is bound to pay A for them. — B has voluntarily taken the benefit and cannot retain it without paying.
💡 Exam Tip — Quantum Meruit
Quantum Meruit = "as much as he has earned." Available when: (1) Contract discharged by breach of defendant — plaintiff can claim for work done; (2) Part performance accepted by defendant; (3) S.70 (non-gratuitous act). Cannot claim more than contract price.
Important Questions for Examination
DU LLB I Term · LB-CC-102 · Law of Contract I
Short Answer Questions (2–5 marks)
- Define 'Contract' under the Indian Contract Act, 1872. Distinguish between an agreement and a contract.
- What is 'consideration' under S.2(d) ICA? State the rules governing consideration.
- What is a 'Void Agreement'? Give examples of void agreements under the ICA.
- What is meant by 'consensus ad idem'? Explain with illustration.
- What is 'caveat emptor'? State its exceptions.
- Explain the concept of 'quantum meruit' with examples.
- What is the postal rule of acceptance? Discuss its applicability.
- Define 'Coercion' under S.15. How does it differ from 'Undue Influence' under S.16?
- What is a 'Wagering Agreement' under S.30? State its exceptions.
- Explain the rule in Clayton's Case and its application to appropriation of payments.
- What is 'Anticipatory Breach' under S.39? State the remedies available.
- Explain S.74 on liquidated damages and penalty. How does it differ from English law?
Long Answer / Essay Questions (10–15 marks)
- Discuss the essentials of a valid contract under S.10 of the Indian Contract Act, 1872. Illustrate each essential with examples.
- "An agreement without consideration is void." Critically examine this statement in light of the exceptions provided under S.25. Refer to relevant case law.
- Analyse the law relating to minor's agreements in India in light of the decision in Mohori Bibee v. Dharmodas Ghose. Is the position different in England?
- What is 'Free Consent'? Discuss each of the five vitiating factors under S.14 of the Indian Contract Act, 1872, with relevant cases and their effects on the contract.
- "Mere silence is not fraud." Critically examine this rule with reference to S.17 ICA, its exceptions, and relevant case law.
- Discuss the distinction between fraud and misrepresentation under the Indian Contract Act, 1872. What are the remedies available for each?
- Explain the doctrine of frustration under S.56 of the Indian Contract Act. When does a contract become frustrated? Refer to Satyabrata Ghose v. Mugneeram Bangur and English cases.
- Discuss the law of damages for breach of contract under S.73 ICA. Explain the rule in Hadley v. Baxendale and its incorporation into Indian law. How does S.74 deal with penalty and liquidated damages?
- Write a detailed note on quasi-contracts under the Indian Contract Act, 1872. Explain each head under S.68–72 with illustrations.
- Discuss agreements in restraint of trade under S.27 ICA. What are the exceptions? Is the Indian position different from English law? Refer to case law.
Problem-Based Questions (Practical Application)
- A offers to sell his car to B for ₹5 lakhs. B replies "I will buy it for ₹4.5 lakhs." Later, B says "I accept your original offer." Is there a valid contract? Advise A.
- A aged 16 enters into a contract to purchase a motorcycle from B, a dealer, for ₹80,000. A pays ₹20,000 advance. A refuses to pay the balance. What are B's remedies? Can A recover the ₹20,000?
- A promises to pay B ₹1,000 if he discovers who stole A's watch. B having previously discovered this fact, informs A. Is this a valid contract? Can B sue for ₹1,000?
- A and B enter into a contract for a concert. The hall burns down before the date. A sues B for damages. Advise B. Would the answer differ if B had insured the hall?
- A lends ₹50,000 to B on the condition that if B does not repay, he will not sue in court. B fails to repay. Can A sue in court? Discuss the validity of the condition.
- A contracts to sell his shop to B. The sale deed contains a clause that A will not set up a similar business anywhere in India for 10 years. Advise A on the enforceability of this clause.
- A buys goods from B under a misrepresentation by B. Before A rescinds the contract, B sells the goods to C (innocent purchaser) for value. Can A rescind against C?
- X deposits money with Y Bank in a savings account. The bank applies it to X's overdraft account without X's direction. X sues for recovery. Discuss applicability of appropriation rules.
Multiple Choice Questions (MCQs)
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1. Which Section of ICA defines 'Contract'?
(a) Section 2(e)(b) Section 2(h) (c) Section 10(d) Section 2(a)✓ Answer: (b) Section 2(h)
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2. A minor's agreement in India is:
(a) Valid(b) Voidable (c) Void ab initio(d) Unenforceable✓ Answer: (c) Void ab initio — Mohori Bibee v. Dharmodas Ghose
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3. Consideration in India may flow from:
(a) Only the promisee(b) Only a third party (c) Promisee or any other person(d) Only the promisor✓ Answer: (c) Promisee or any other person — S.2(d)
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4. A contract obtained by misrepresentation is:
(a) Void(b) Voidable (c) Valid(d) Illegal✓ Answer: (b) Voidable at option of aggrieved party
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5. S.27 ICA deals with agreements in restraint of:
(a) Marriage(b) Legal proceedings (c) Trade(d) Wager✓ Answer: (c) Trade
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6. Under S.4 ICA, acceptance by post is complete against the proposer when:
(a) Received by proposer(b) Letter is posted (c) Received by acceptor(d) None of these✓ Answer: (b) When letter of acceptance is put into the course of transmission (posted)
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7. The rule in Hadley v. Baxendale is codified in which section of ICA?
(a) S.73(b) S.74 (c) S.75(d) S.56✓ Answer: (a) Section 73
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8. Which section deals with 'finder of lost goods' in the ICA?
(a) S.69(b) S.70 (c) S.71(d) S.72✓ Answer: (c) Section 71
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9. Contracts in which time is of essence — failure to perform in time entitles the other party to:
(a) Only damages(b) Void the contract (c) Compensation(d) Extension of time✓ Answer: (b) Void the contract (S.55 para 1)
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10. Which case held that S.56 ICA embodies the English doctrine of frustration?
(a) Mohori Bibee(b) Satyabrata Ghose v. Mugneeram Bangur (c) Carlill v. Carbolic Smoke Ball(d) Taylor v. Caldwell✓ Answer: (b) Satyabrata Ghose v. Mugneeram Bangur (1954 SC)
Quick Revision Cheatsheet & Mnemonics
Mnemonic — Essentials of Valid Contract
OFFER CLIP
Mnemonic — Vitiating Factors (S.14)
CUFMM
Mnemonic — Modes of Discharge
PAL BOB
Key Definitions — Quick Reference
- Agreement: Offer + Acceptance [S.2(e)]
- Contract: Agreement + Enforceability [S.2(h)]
- Proposal: Willingness to do/abstain [S.2(a)]
- Promise: Accepted proposal [S.2(b)]
- Consideration: Act/abstinence/promise at desire of promisor [S.2(d)]
- Void Agreement: Not enforceable [S.2(g)]
- Voidable: Enforceable at option of aggrieved party [S.2(i)]
Vitiating Factors — Effects
- Coercion → Voidable + repayment (S.72)
- Undue Influence → Voidable (S.19A)
- Fraud → Voidable + damages (S.19)
- Misrepresentation → Voidable only (S.19)
- Bilateral Mistake → Void (S.20)
- Unilateral Mistake → Not voidable (S.22)
- Mistake of Indian Law → Not affected (S.21)
Minor's Contract — Rules
- Agreement = Void ab initio (Mohori Bibee)
- No estoppel against minor
- No ratification after majority
- Can be beneficiary (enforce for benefit)
- Necessaries: quasi-contractual liability on property
- Can act as agent — binds principal, not self
- Minor partner: only admitted to benefits (S.30 IPA)
Damages — Key Rules
- S.73: Natural loss from breach (Hadley v. Baxendale)
- Duty to mitigate — aggrieved party must minimise loss
- S.74: Reasonable compensation ≤ stipulated amount
- No distinction between penalty and LD in India
- Nominal damages: breach proved but no actual loss
- Exemplary damages: not available for breach of contract
- Quantum meruit: for work done; available on breach
Void Agreements (S.26–30, 56)
- S.26 — Restraint of marriage
- S.27 — Restraint of trade (exceptions: goodwill sale)
- S.28 — Restraint of legal proceedings
- S.29 — Uncertain agreements
- S.30 — Wagering (exceptions: horse race, skill-based prize)
- S.56 — Agreement to do impossible act
- S.25 — No consideration (subject to exceptions)
Quasi-Contract Heads (S.68–72)
- S.68 — Necessaries to incapable person
- S.69 — Payment by interested person
- S.70 — Non-gratuitous act (quantum meruit)
- S.71 — Finder of lost goods (like bailee)
- S.72 — Money paid by mistake/coercion
- Basis: Unjust enrichment prevented
- No contract needed — obligation imposed by law
Frustration (S.56) — Key Cases
- Taylor v. Caldwell (1863) — destruction of subject matter
- Krell v. Henry (1903) — Coronation cases; purpose impossible
- Davis Contractors v. Fareham (1956) — mere hardship ≠ frustration
- Satyabrata Ghose (1954 SC) — "impossible" = impracticable
- NOT applicable: party's own default, commercial frustration
- Effect: Contract void from date of frustration
- Money paid before: recoverable under S.72
Consideration — Key Rules
- Must move at promisor's desire (not voluntary)
- May move from promisee OR third party (India)
- May be past, present or future (India)
- Must be real — not illusory or impossible
- Need not be adequate — courts don't weigh
- Exceptions: S.25(1) love/affection; S.25(2) past voluntary; S.25(3) time-barred debt
- Pre-existing duty rule: cannot be consideration