BUSINESS LAW

UNIT I [15 Hrs]

Indian Contract Act 1872- Meaning and Definition - General nature of Contract –
Types of contract- Essential elements of a Valid Contract- Classification of Valid Contract.

UNIT II [15 Hrs]

Offer, Acceptance and Consideration: Meaning – Definition – Essentials – Types –

Valid Contract without Consideration.

UNIT III [15 Hrs]

Contractual Capacity-Minor-Person of unsound mind – Expressly disqualified
Person – Free consent – legality of object – Void agreement – Illegal Agreement.

UNIT IV [15 Hrs]

Performance of Contract – Types-Different Modes of Discharge of Contract –

Remedies for Breach of Contract

UNIT V [15 Hrs]

The Sale of Goods Act, 1930: Formation of Contract of Sale – Conditions and
Warranties – Transfer of Ownership and Delivery of goods- Unpaid seller and his Rights..

Question Paper Pattern

Section – A - 10x1 = 10 Marks (Multiple choice with 4 options – 2 Questions from each unit)
Section –B - 5x4 = 20 Marks (5 Questions (Either Or type) 1 question from each unit)
Section – C - 3x15 = 45 Marks (Answer any 3 out of 5 questions) One Question from
Each unit)
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75 Marks
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 UNIT – I

INDIAN CONTRACT ACT, 1872

Definition of a Contract :

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement
enforceable by law”. In other words, we can say that a contract is anything that is an agreement and
enforceable by the law of the land.

This definition has two major elements in it viz – “agreement” and “enforceable by law”. So in order
to understand a contract in the light of The Indian Contract Act, 1872 we need to define and explain these
two pivots in the definition of a contract.

Agreement

The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act
defines the term agreement as “every promise and every set of promises, forming the consideration for
each other”.

Now that we know how the Act defines the term “agreement”, there may be some ambiguity in the
definition of the term promise.

Promise

This ambiguity is removed by the Act itself in its section 2(b) which defines the term “promise” here
as: “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be
accepted. Proposal when accepted becomes a promise”.

In other words, an agreement is an accepted promise, accepted by all the parties involved in the
agreement or affected by it. This definition thus introduces a flow chart or a sequence of steps that need to
be triggered in order to establish or draft a contract. The steps may be described as under:

i. The definition requires a person to whom a certain proposal is made.

ii. The person (parties) in step one have to be in a position to fully understand all the aspects of
a proposal.

iii. “Signifies his assent thereto” – means that the person in point one accepts or agrees with the
proposal after having fully understood it.

iv. Once the “person” accepts the proposal, the status of the proposal changes to “accepted
proposal”.

v. “Accepted proposal” becomes a promise. Note that the proposal is not a promise. For the
proposal to become a promise, it has to be accepted first.
 Thus, in other words, an agreement is obtained from a proposal once the proposal, made by one or
more of the participants affected by the proposal, is accepted by all the parties addressed by the
agreement. To sum up, we can represent the above information below:

Agreement = Offer + Acceptance.

Enforceable By Law

Now let us try to understand this aspect of the definition as is present in the Act. Suppose you agree to
sell a unicorn for ten magic beans with a friend. Can you have a contract for this?

Well if you follow the steps in the previous section, you will argue that once you and your friend
agree on the promise, it becomes an agreement. But in order to be a contract as per the definition of the
Act, the agreement has to be legally enforceable.

Thus we can say that for an agreement to change into a Contract as per the Act, it must give rise to or
lead to legal obligations or in other words must be within the scope of the law. Thus we can summarize it
as Contract = Accepted Proposal (Agreement) + Enforceable by law (defined within the law)

Meaning of a Contract:

Now we can define a contract and more importantly, understand what “Not” a contract is. A contract
is an accepted proposal (agreement) that is fully understood by the law and is legally defined or
enforceable by the law.

So a contract is a legal document that bestows upon the parties special rights (defined by the contract
itself) and also obligations which are introduced, defined and agreed upon by all the parties of the
contract.

Difference between Agreement and Contract

Let us see how a contract and agreement are different from each other. This will help you summarize
and make a map of all the important concepts that you have understood.

Contract Agreement

A promise or a number of promises that

A contract is an agreement that is
are not contradicting and are accepted by the
enforceable by law.
parties involved is an agreement.
 An agreement must be socially
A contract is only legally enforceable. acceptable. It may or may not be
enforceable by the law.

A contract has to create some legal An agreement doesn’t create any legal
obligation. obligations.

An agreement may or may not be a

All contracts are also agreements.
contract.

General Nature (or)Essential Elements of a Contract

1. Agreement: The primary element that creates a contract between parties is agreement,
which is a result of offer and acceptance that forms consideration for the parties concerned.
2. Free Consent: Consent of the parties is another important aspect of a contract, which
means the parties entering into the contract, must agree upon the same thing in the same sense. The
consent of the parties is said to be free when it is not influenced by coercion, undue influence, fraud,
misrepresentation and mistake.
3. Competency: Competency refers to the capacity of the parties to enter into the contract, i.e.
he/she has reached the age of maturity, he/she must be of sound mind, and he/she is not disqualified
from contracting, as per the law like the alien enemy, foreign sovereigns, etc.
 4. Consideration: It implies the price agreed to be paid for the promisor’s obligation by the
promisee. It must be adequate and lawful.
5. Lawful object: The object for which the contract is created must be lawful, or else it is
declared as void.
6. Not expressly declared as void: The law should not expressly declare the contract as void,
such as contract in restraint of marriage, trade or legal proceedings.

Other important elements of Contract

 There must be at least two parties to constitute a contract, i.e. one who proposes and
another accepts the same.
 The parties entering into the contract must intend to create a legal obligation for one
another.
 It must be in writing.
 There must be certainty of meaning. the terms of the parties must be clear to the parties, i.e.
the party should not interpret anything wrong, there must be a consensus ad idem.
 There should be a possibility of performing the contract.
So, these are some paramount elements of a contract, without which it cannot be enforced in the
court of law.

Types of Contract
  On the basis of validity
 Valid Contract: An agreement which is enforceable by law, is a valid contract.
 Void Contract: The contract which is no longer enforceable in the court of law is a
void one.
 Voidable Contract: A contract in which one of the parties to the contract has a
choice to avoid performing his/her part, then it is termed as a voidable contract. When the consent of
the party is not free, the contract becomes voidable, at the option of the aggrieved party.
 Illegal Contract: A contract which is forbidden by law is termed as an illegal
contract.
 Unenforceable Contract: The contract whose substance is good, but due to some
issues, it is not enforceable, is called unenforceable contract.
 On the basis of formation
 Express Contract: When the terms of the contract are expressed orally or in
writing, it is known as an express contract.
 Implied Contract: The contract which is constituted by implication of law or
action, is an implied one.
 Quasi-Contract: These are not real contract, but are identical to a contract, which
is formed out of some circumstances.
 On the basis of Performance
 Executed Contract: When the contract is performed, it is known as an executed
contract.
 Executory Contract: When the obligation in a contract, is to be performed in
future, it is described as an executory contract.
 Unilateral Contract
 Bilateral Contract
To sum up, agreements are termed as a contract, if it comprises all the essential elements that
constitute a contract.

Essential elements of a valid contract

1. Offer and Acceptance

Basically, a contract unfolds when an offer by one party is accepted by the other party. The
accepted offer should be without any qualification and be definite. An offer needs to be clear, definite,
complete and final. It should be communicated to the offeree. A proposal when accepted becomes a
promise or agreement. The offer and acceptance must be ‘consensus ad idem’ which means that both
the parties must agree on the same thing in the same sense i.e. identity of wills or uniformity of minds.

2. Intention to Create Legal Relationship

The intention of the parties to a contract must be to create a legal relationship between them.
Agreements of social nature, as they do not contemplate legal relationship, are not contracts. For
instance, if a father fails to give his daughter the promised pocket money, the daughter cannot sue the
father, because it was purely a domestic arrangement. Thus, it is clear that all agreements, which do
not result in legal relations, are not contracts.

3. Capacity to Contract
If an agreement is entered between parties who are competent enough to contract, then the
agreement becomes a contract.

4. Genuine and Free Consent

Free consent is another essential element of a valid contract. An agreement must have been made
by free consent of the parties. The contract would be void in case of mutual mistakes. When consent is
obtained by unfair means, the contract would be voidable.

5. Lawful Object
Objectives of an agreement should be lawful. It must not be illegal or immoral or opposed to
public policy. It is lawful unless it is forbidden by law. When the object of a contract is not lawful, the
contract is void.

6. Lawful Consideration
Something in return is Consideration. In every contract, agreement must be supported by
consideration. It must be lawful and real.

7. Certainty and Possibility of Performance

The agreements, in which the meaning is uncertain or if the agreement is not capable of being
made certain, it is deemed void. T&C of the contract should always be certain and cannot be vague.
Any contract that are uncertain are considered void. The terms of the agreement must also be capable
of performance and should not enforce impossible act.

8. Legal Formalities
Legal formalities if any required for particular agreement such as registration, writing, they must
be followed. Writing is essential in order to affect a sale, lease, mortgage, gift of immovable property
etc. Registration is required in such cases and legal formalities in the relevant legislation should be
strictly followed

Types of Contracts – Based on Validity

Now that you know what a contract is, can you identify the various Types of Contracts? Proper
knowledge of the types of contracts is essential as it will allow you to decide the legal ramifications of
an agreement. Here we will see the different Types of Contracts classified as per their validity.

Types of Contracts On The Basis Of Validity

Chapter 2 of the Indian Contract Act, 1872 discusses the voidable contracts and void agreements. On
the basis of validity or enforceability, we have five different types of contracts as given below.

Valid Contracts

The Valid Contract as discussed in the topic on “Essentials of a Contract” is an agreement that is
legally binding and enforceable. It must qualify all the essentials of a contract.
 Void Contract or Agreement

The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable”. This makes all those contracts that are not
enforceable by a court of law as void.

Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs. 8,000. A dies of
natural causes in 4 years. The contract is no longer valid and becomes void due to the non-enforceability
of the agreed terms.

Voidable Contract

These types of Contracts are defined in section 2(i) of the Act: “An agreement which is enforceable
by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a
voidable contract.”

For example: A agrees to pay a sum of Rs. 10,0000 to a person B for an antique chair. This contract
would be valid, the only problem is that person B is a minor and can’t legally enter a contract.

So this contract is a valid contract from the point of view of A and a “voidable” contract from the
point of view of B. As and when B becomes a major, he may or may not agree to the terms. Thus this is a
voidable contract.

Illegal Contract

An agreement that leads to one or all the parties breaking a law or not conforming to the norms of
the society is deemed to be illegal by the court. A contract opposed to public policy is also illegal. For
example, A agrees to sell narcotics to B. Although this contract has all the essential elements of a valid
contract, it is still illegal.

The illegal contracts are deemed as void and not enforceable by law. As section 2(g) of the Act states:
“An agreement not enforceable by law is said to be void.” Thus we can say that all illegal contracts are
void but the reverse is not true. Both the void contracts and illegal contracts can’t be enforceable by law.
Illegal contracts are actually void ab initio (from the start or the beginning). Also because of the criminal
aspects of the illegal contracts, they are punishable under law. All the parties that are found to have agreed
on an illegal promise are prosecuted in a court of law.

Unenforceable Contracts: Unenforceable contracts are rendered unenforceable by law due to some
technical. The contract can’t be enforced against any of the two parties.

For example, A agrees to sell to B 100kgs of rice for 10,000/-. But there was a huge flood in the states
and all the rice crops were destroyed. Now, this contract is unenforceable and cannot be enforced against
either party.
 UNIT-2

OFFER, ACCEPTANCE AND CONSIDERATION

 Offer –Meaning:

An offer is a promise to do or not to do something in sufficiently clear terms that may be accepted
by another. Offers do not necessarily need to be made to one person – that may be made to the world
at large or to specific groups of people. The significance of an offer is that when it is accepted, the
contract is formed. In addition to being accepted, an offer may be rejected, a counter-offer may be
made, the offer may lapse or the offeror may withdraw the offer, such that it is no longer available to
be accepted.

 Proposal or Offer-Definition:

According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as “when one person
will signify to another person his willingness to do or not do something (abstain) with a view to obtain the
assent of such person to such an act or abstinence, he is said to make a proposal or an offer.”

Let us look at some features or essentials of such an offer

 The person making the offer/proposal is known as the “promisor” or the “offeror”. And the
person who may accept such an offer will be the “promisee” or the “acceptor”.

 The offeror will have to express his willingness to do or abstain from doing an act. Only
willingness is not enough. Or simply a desire to do/not do something will not constitute an offer.

 An offer can be positive or negative. It can be a promise to do some act, and can also be a
promise to abstain (not do) some act/service. Both are valid offers.
 Classification of Offer
There can be many types of offers based on their nature, timing, intention, etc. Let us take a look at
the classifications of offers.

1. General Offer
A general offer is one that is made to the public at large. It is not made any specified parties. So any
member of the public can accept the offer and be entitled to the rewards/consideration. Say for example
you put out a reward for solving a puzzle. So if any member of the public can accept the offer and be
entitled to the reward if he finishes the act (solves the puzzle.)

2. Specific Offer

A specific offer, on the other hand, is only made to specific parties, and so only they can accept the
said offer or proposal. They are also sometimes known as special offers. Like for example, an offers to
sell his horse to B for Rs 5000/-. Then only B can accept such an offer because it is specific to him.
 3. Cross Offer
In certain circumstances, two parties can make a cross offer. This means both make an identical offer
to each other at the exact same time. However, such a cross offer will not amount to acceptance of the
offer in either case. For example, both A and B send letters to each other offering to sell and buy A’s
horse for Rs 5000/-. This is a cross offer, but it will be considered as acceptable for either of them.
4. Counter Offer
There may be times when a promise will only accept parts of an offer, and change certain terms of the
offer. This will be a qualified acceptance. He will want changes or modifications in the terms of the
original offer. This is known as a counteroffer. A counteroffer amounts to a rejection of the original offer.

 Essentials of a Valid Offer

Here are some of the few essentials that make the offer valid.

1] Offer must create Legal Relations

The offer must lead to a contract that creates legal relations and legal consequences in case of non-
performance. So a social contract which does not create legal relations will not be a valid offer. Say for
example a dinner invitation extended by A to B is not a valid offer.

2] Offer must be clear, not vague

The terms of the offer or proposal should be very clear and definite. If the terms are vague or unclear,
it will not amount to a valid offer. Take for example the following offer – A offers to sell B fruits worth Rs
5000/-. This is not a valid offer since what kinds of fruits or their specific quantities are not mentioned.

3] Offer must be communicated to the Offeree

For a proposal to be completed it must be clearly communicated to the offeree. No offeree can accept
the proposal without knowledge of the offer. The famous case study regarding this is Lalman Shukla v.
Gauri Dutt. It makes clear that acceptance in ignorance of the proposal does not amount to acceptance.

4] Offer may be Conditional

While acceptance cannot be conditional, an offer might be conditional. The offeror can make the offer
subject to any terms or conditions he deems necessary. So A can offer to sell goods to B if he makes half
the payment in advance. Now B can accept these conditions or make a counteroffer.

5] Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot lead to automatic acceptance of the offer. Hence
it cannot say that if acceptance is not communicated by a certain time it will be considered as accepted.
Example: An offers to sell his cow to B for 5000/-. If the offer is not rejected by Monday it will be
considered as accepted. This is not a valid offer.
 6] Offer can be specific or General
As we saw earlier the offer can be to one or more specific parties. Or the offer could be to the public
in general.

7] Offer may be Expressed or Implied

The offeror can make an offer through words or even by his conduct. An offer which is made via
words, whether such words are written or spoken (oral contract) we call it an express contract. And when
an offer is made through the conduct and the actions of the offeror it is an implied contract.

 ACCEPTANCE- MEANING:

The acceptance of the offeror’s terms must be unconditional. In many cases this may
constitute a ‘yes’ or ‘no’ reply to an offer made. There are situations where such a simple exercise may
not be possible and it requires the courts to give direction as to how acceptance may be established. An
offer may be accepted by conduct; silence, however, can never constitute acceptance.[Smith v Hughes
1871]

 Acceptance-Definition:

The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the
proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the proposal
when accepted becomes a promise.”

So as the definition states, when the offeree to whom the proposal is made, unconditionally accepts
the offer it will amount to acceptance. After such an offer is accepted the offer becomes a promise.

Say for example a offers to buy B’s car for rupees two lacs and B accepts such an offer. Now, this has
become a promise.

 Rules regarding Valid Acceptance(or) Essentials:

1] Acceptance can only be given to whom the offer was made

In the case of a specific proposal or offer, it can only be accepted by the person it was made to. No
third person without the knowledge of the offeree can accept the offer.

Let us take the example of the case study of Boulton v. Jones. Boulton bought
Brocklehurst’s business but Brocklehurst did not inform all his creditors about the same. Jones, a creditor
of Brocklehurst placed an order with him. Boulton accepted and supplied the goods. Jones refused to pay
since he had debts to settle with Brocklehurst. It was held that since the offer was never made to Boulton,
he cannot accept the offer and there is no contract.

When the proposal is a general offer, then anyone with knowledge of the offer can accept it.
 2] It has to be absolute and unqualified

Acceptance must be unconditional and absolute. There cannot be conditional acceptance that would
amount to a counteroffer which nullifies the original offer. Let us see an example. A offers to sell his
cycle to B for 2000/-. B says he accepts if A will sell it for 1500/-. This does not amount to the offer being
accepted, it will count as a counteroffer.

Also, it must be expressed in a prescribed manner. If no such prescribed manner is described then it
must be expressed in the normal and reasonable manner, i.e. as it would be in the normal course of
business. Implied acceptance can also be given through some conduct, act, etc.

However, the law does not allow silence to be a form of acceptance. So the offeror cannot say if no
answer is received the offer will be deemed as accepted.

3] Acceptance must be communicated

For a proposal to become a contract, the acceptance of such a proposal must be communicated to the
promisor. The communication must occur in the prescribed form or any such form in the normal course
of business if no specific form has been prescribed.

Further, when the offeree accepts the proposal, he must have known that an offer was made. He
cannot communicate acceptance without knowledge of the offer.

So when A offers to supply B with goods and B is agreeable to all the terms. He writes a letter to
accept the offer but forgets to post the letter. So since the acceptance is not communicated, it is not valid.

4] It must be in the prescribed mode

Acceptance of the offer must be in the prescribed manner that is demanded by the offeror. If no such
manner is prescribed, it must be in a reasonable manner that would be employed in the normal course of
business.

But if the offeror does not insist on the manner after the offer has been accepted in another manner, it
will be presumed he has consented to such acceptance.

So A offers to sell his farm to B for ten lakhs. He asks B to communicate his answer via post. B e-
mails A accepting his offer. Now A can ask B to send the answer through the prescribed manner. But if A
fails to do so, it means he has accepted the acceptance of B and a promise is made.

5] Implied Acceptance

Section 8 of the Indian Contract Act 1872, provides that acceptance by conduct or actions of the
promisee is acceptable. So if a person performs certain actions that communicate that he has accepted the
offer, such implied acceptance is permissible. So if A agrees to buy from B 100 bales of hay for 1000/-
and B sends over the goods, his actions will imply he has accepted the offer.

 Consideration- Meaning:

Consideration is a promise, an act, or a promise not to act and represents the value in the
contract. For example, in a services contract for services, one person will promise to perform services
(the consideration of one party), and the other will promise to pay money in exchange for the service
(the other party’s consideration).

Consideration in a contract may be executory, executed or past. Executory consideration

is a promise that will be performed in the future, executed consideration is a promise that has been
performed thus giving rise to the obligation on the offeror to perform their promise, and past
consideration.

 Definition:

According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as follows:

“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 is called a consideration for the promisee.”

This is a complex sentence. Let’s break it down for further understanding and rewrite it as follows:

At the desire of the promisor if the promisee either

 Does something (in the past, present or future) OR

 Abstains from doing something (in the past, present or future)

Then, this act of doing or abstinence is called Consideration. Now, it has two aspects, either doing
some act or abstaining from doing something.

Rules Regarding Consideration (or) Essential

According to Section 2(d) of the Indian Contract Act, 1872, the follows features are essential for a
valid consideration:

(i) Consideration must move at the desire of the promisor

Consideration can be offered by the promisee or a third-party only at the request or desire of the
promisor. If an action is initiated at the desire of the third-party, it is not a consideration.
 Peter is going back home from work. On his way, he sees that his neighbour John’s house is on fire.
He immediately arranges for a water hose and manages to douse the fire. Peter cannot claim any reward
for his effort because it was a voluntary act and was not done at the desire of John (promisor).

(ii) Consideration may move from the promisee to any other person
If you look at the definition of consideration according to section 2 (d) of the Indian Contract Act.
1872, it explicitly states the phrase ‘promisee or any other person…’ This essentially means that in India,
consideration may move from the promise to any other person. However, it is important to note that there
can be a stranger to consideration but not a stranger to the contract.

Peter gifted his son, Oliver an apartment in the city with a condition that he pays a fixed amount of
money to his uncle, John, every year. On the same day, Oliver executed a deed to pay a fixed amount
of money to John every year. However, Oliver failed to pay and John filed a suit for recovery. Oliver
pleaded that he was not liable since no consideration had moved from John. However, the court held the
words ‘promisee or any other person…’ and allowed John to maintain his suit for recovery.

(iii) It can be in the past, present or future

a. Past

It refers to consideration provided already in the past by a party for a present promise. According to
Indian law, ‘past considerations’ is ‘good consideration’ if it was given at the desire of the promisor.

(Ex.)Peter employs John to work on his field during the months of agricultural harvesting. He
promises to pay John an amount of Rs 5,000 for his services when he sows the new crop in the fields. The
services of John in the past constitute a valid consideration.
b. Present
If the promise and consideration take place simultaneously then it is present or executed
consideration. An example is Peter goes to a shop, buys a bag of chips and pays for the same on-spot.
c. Future

When the consideration for a promise moves after the contract is formed, it is a future or executor. It
is also valid if it depends on the condition.

(Ex.)Peter promises to create architectural plans for John’s new house. John promises to pay Peter an
amount of Rs 50,000 provided the plans are approved by his wife.

(iv)It must have value in the eyes of the law

While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real and
have value in the eyes of law. While the Court will not consider inadequacy, it will look at it to determine
if the consent was given by the party with free-will or not.
 (Ex.)Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay
her a monthly maintenance amount. This is a good consideration and holds value in the eyes of law.

(v) It should be over and above the Promisors’ existing obligations

If the promisor is already obligated either by his promise or law to perform or abstain from a certain
act, then it is not a good consideration for a promise.

(Ex.)Peter receives a summons from the Court to appear before it as a witness for John. John promises
to pay him Rs 10,000 to appear in the Court. This contract is not valid because Peter is obligated by law to
appear in the Court on receiving a summons.

(vi) It cannot be Unlawful

A consideration that is against the law or public policies is not valid.

(Ex.)Peter offers Rs 10,000 to John to beat up his business rival. John beats him up but Peter refuses
to pay him. John cannot file a suit for recovery since the consideration is against the law.

 VALID CONTRACT WITHOUT CONSIDERATION

Consideration is an integral part of a contract. The rules of consideration state that it is essential to
have consideration for a contract. But there are some specific exceptions to the “No consideration no
contract” rule. Let us take a look.

Consideration

Can you make a legal agreement without consideration? No. As per Section 10 and Section 25 of the
Indian Contract Act, 1872, consideration is essential in a valid contract. In simple words, no consideration
no contract. Hence, you can enforce a contract only if there is a consideration.

While considerations are integral to a contract, the Indian Contract Act, 1872 has listed
some exceptions whereby an agreement made without consideration will not be void.

Exceptions to the ‘No Consideration No Contract’ Rule

Section 25 also lists the exceptions under which the rule of no consideration no contract does not
hold, as follows:

Natural Love and Affection

If an agreement is in writing and registered between two parties in close relation (like blood relatives
or spouse), based on natural love and affection, then such an agreement is enforceable even without
consideration.
 Example, Peter and John are brothers. In his will, their father nominates Peter as the sole owner of
his entire property after his death. John files a case against Peter to claim his right to the property but
loses the case. Peter and John come to a mutual decision where Peter agrees to give half of the property
to his brother and register a document regarding the same.

Eventually, Peter didn’t fulfil his promise and John filed a suit for recovery of his share in the
property. The Court held that since the agreement was made based on natural love and affection, the no
consideration no contract rule didn’t apply and John had the right to recover his share.

Past Voluntary Services

If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date,
then the contract is binding provided:

 The service was rendered voluntarily in the past

 It was rendered to the promisor

 The promisor was in existence when the voluntary service was done (especially important
when the promisor is an organization)

 The promisor showed his willingness to compensate the voluntary service

Example, Peter finds Johns wallet on the road and returns it to him. John is happy to find his lost
wallet and promises to pay Peter Rs 2,000. In this case, too, the no consideration no contract rule does
not apply. This contract is a valid contract.

Promise to pay a Time-Barred Debt

If a person makes a promise in writing signed by him or his authorized agent about paying a time-
barred debt, then it is valid despite there being no consideration. The promise can be made to pay the debt
wholly or in part.

Example, Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago. However, he
never paid a single rupee back. He signs a written promise to pay Rs 50,000 to John as a final settlement
of the loan. In this case, ‘the no consideration no contract’ rule does not apply either. This is a valid
contract.

Creation of an Agency

According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an
agency.

Gifts
 The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the
Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does not
apply to gifts made by a donor and accepted by a done.

Bailment

Section 148 of the Indian Contract Act, 1872, defines bailment as the delivery of goods from one
person to another for some purpose. This delivery is made upon a contract that post accomplishment of
the purpose, the goods will either be returned or disposed of, according to the directions of the person
delivering them. No consideration is required to effect a contract of bailment.

Charity

If a person undertakes a liability on the promise of another to contribute to charity, then the contract is
valid. In this case, the no consideration no contract rule does not apply.

Example, Peter is the trustee of his town’s charity organization. He wants to build a small pond in the
town to enhance greenery and offer the residents a good place to walk around in the evenings. He raises
a charity fund where he appeals to people to come ahead and contribute to the cause. Many people come
forward as subscribers the fund and agree to pay Peter their share of the amount once he enters into a
contract for constructing the pond.

After raising half the amount, Peter hires contractors for building the pond. However, 10 people back
out at the last moment. Peter files a suit against them for recovery. The Court ordered the 10 people to
pay the amount to Peter since he had undertaken a liability based on their promise to pay. Even though
there was no consideration, the contract was valid and enforceable by law.
 UNIT – III
CONTRACTUAL CAPACITY
One of the most essential elements of a valid contract is the competence of the parties to make a
contract. Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be
dependent on three aspects; attaining the age of majority, being of sound mind, and not disqualified
from entering into a contract by any law that he is subject to. In this article, we will look at all aspects
in a detailed manner.
Capacity to Contract
According to 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 who is of sound mind and is not disqualified from
contracting by any law to which he is subject.”
So, we have three main aspects:
 Attaining the age of majority

 Being of sound mind

 Not disqualified from entering into a contract by any law

1] Attaining a majority:
According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years. For
the purpose of entering into a contract, even a day less than this age disqualifies the person from being
a party to the contract. Any person, domiciled in India, who has not attained the age of 18 years, is
termed as a minor.
2] Person of Sound Mind:
According to Section 12 of the Indian Contract Act, 1872, for the purpose of entering into a
contract, a person is said to be of sound mind if he is capable of understanding the contract and being
able to assess its effects upon his interests.
It is important to note that a person who is usually of an unsound mind, but occasionally of a sound
mind, can enter a contract when he is of sound mind. No person can enter a contract when he is of
unsound mind, even if he is so temporarily. A contract made by a person of an unsound mind is void.
3] Disqualified Persons:
Apart from minors and people with unsound minds, there are other people who cannot enter into a
contract. i.e. do not have the capacity to contract. The reasons for disqualification can include political
status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien enemy,
convicts, insolvents, etc.
MINOR
In law, a minor is a person under a certain age, usually the age of majority, which legally
demarcates childhood from adulthood. The age of majority depends upon jurisdiction and application,
but it is generally 18. Minor may also be used in contexts that are unconnected to the overall age of
majority.
Agreement with Minor
The Indian Contract Act, 1872 is important legislation in the field of commercial law in India. It is
basically responsible for regulating contractual relationships and obligations. A common legal
complexity often arises when an agreement with minor parties takes place. This is problematic because
the Act does not permit such agreements out rightly.
Agreement with Minor parties
Section 11 states that only persons who have attained majority according to the law are competent
to contract. Therefore, there must be a law that defines the age of majority.
 In India, the Indian Majority Act, 1875 declares the age of majority of all persons to be 18 years. If
a minor has a guardian or Court of Ward looking after him, his age of majority becomes 21 years.
Hence, any contract with a party below the age of 18 years is invalid as per the Act.
A very important case that had explained this issue is Mohiri Bibi v. Dharmodas Ghose. In this
case, a minor had borrowed some money from a money-lender by mortgaging his house.
The money-lender moved to take possession of the minor’s house when he defaulted payment. The
court, however, said since an agreement with minor parties is void, the money-lender could not
enforce this contract. Indian courts have repeatedly used this judgment to abrogate minors from
contractual obligations. Hence, minors cannot enter into agreements unless some legal provisions
allow them.
For example, a minor cannot transfer property as per the Transfer of Property Act. He can,
however, receive property from other persons under a legal contract.
Rules regarding minor's agreements:
 An agreement by or with a minor is void an initio: Invalid from the very beginning.
 He is not liable to return the benefits received under a void agreement.
 He can be a beneficiary
 His estate is liable for necessaries provided to him
 He cannot ratify an agreement made during his minority on attaining the age of majority
 Where a minor projects himself as a major (by fraud) and borrows money or goods, he is
not liable to the lender if he spent the money or consumed the goods.
 A minor is liable for punishment for criminal offences committed by him
 He can be appointed as an agent
 He cannot enter into a contract of partnership
 He cannot be adjudged insolvent
 Shares can be purchased in the name of a minor.
PERSON OF UNSOUND MIND
“A person is said to be of sound mind for the purpose of making a contact, 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."
Classification of Persons of Unsound Mind:
(i) Lunatic: A lunatic is a mentally affected person. He suffers from intermittent conditions of
sanity and insanity. Such a person can enter into a contract when he is in a position to understand the
implications of it.
(ii) Idiot: An idiot is a person who does not possess understanding power at all. Idiocy, unlike
insanity, is a permanent condition. An agreement by or with an idiot, therefore, is void.
(iii) Drunken Persons: A person who is drunk loses temporarily his capacity to form a rational
judgment. Such a person, therefore, cannot enter into a valid contract at a time when is so drunk.

OTHER PERSONS DISQUALIFIED FROM CONTRACTING

Apart from minors and persons of unsound mind, the following persons too disqualified
from contracting under law:
(i) Alien enemies: Alien is a person who is not a citizen of India. He may be a alien friend or alien
enemy. Alien friend is one whose country is at peace with India. An alien Enemy, on the other hand, is
one whose country is at war with India.
Contracts with an alien friend are valid. As far as an alien enemy is concerned, he cannot enter into
a contract with an Indian during the period of war. He also cannot take legal action in an Indian Court
without the permission of the Central Government. As far as the contracts made before the war are
concerned, they are dissolved if found to be against the public policy.
(ii) Foreign Ambassadors: They are representatives of foreign countries in India. They can enter
into contracts and enforce these contracts in Indian Courts. But legal action can be taken against them
only with the permission of the Central Government.
(iii) Convicts: Convict is a person in a jail. A person while undergoing imprisonment cannot enter
into a valid contract. But if he is on ‘parole’ (released from jail for a particular purpose) or if his period
of imprisonment has ended, he can enter into a contract.
(iv)Insolvents: An insolvent is a person whose debts are more than his assets. The property of an
insolvent will come into the possession of the Official Receiver or Official Assignee appointed by the
court. An insolvent cannot enter into contracts relating to his property. He cannot sue and to be sued.
The contractual capacity of a Company, registered under the Companies Act of 1956, is determined by
its Memorandum of Association and the provisions of the Companies Act. An act done in excess of
the power of the company is “Ultra Vires” the company, i.e., beyond its powers and therefore void.

FREE CONSENT
According to Section 10, “All agreements are contracts if they are made by the free consent of
parties”
‘Consent’ means ‘willingness’. The willingness of the parties to contract must be freely.
According to Section 14, Consent is said to be free when it is not caused –

1. Coercion

2. Undue influence

3. Fraud

4. Misrepresentation

5. Mistake.

Flaw (imperfection) in consent, thus, arises due to coercion, undue influence, fraud,
misrepresentation or mistake. These have been explained in this chapter.
I) COERCION:-
To ‘coerce’ someone means to ‘force’ or ‘compel’ him or her to act in a particular manner. In other
words, a person uses ‘Coercion’ against another if he threatens that other person.
Definition of Coercion:
According to Section 15, "Coercion" is the committing, or threatening to commit, any act
forbidden by the Indian Penal Code under(45,1860), 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.
It is clear from the definition that-
a) Committing or threatening to commit any act forbidden by the Indian Penal code amounts to
coercion.
Examples:
(i) X beats Y and forces him to execute a deed of gift in his (X’s) favor. Here, coercion is used.
(ii) P threatens to kill Q if the latter does not sell his land worth Rs.5 lakhs for Rs. 50,000. Here,
Q’s consent is obtained using coercion.
b) Unlawful detaining or threatening to detain any property belonging to another is coercion:
Case: Muthaia vs. Muthu Karuppa
 In this case, an agent refused to hand over the account books unless the principal released
him from all liabilities. The Court held that the agent used coercion and the transaction was voidable at
the option of the principal.
From whom may the threat come
The threat resulting in coercion need not necessarily come from a party to the contract. It
may come even from a stranger.
Example:
M owes N Rs. 10,000. R threatens to kill N if the latter does not release M from the debt.
R, here, is a stranger.
Against whom may coercion be exercised
Coercion need not necessarily be exercised against a party to the contract. It may be
exercised even against stranger.
Example:
X owes Y Rs. 10,000. X threatens to kill Z, who is Y’s son, if Y doesnot release him from
the debt. Z, here, is a stranger to the contract.
What is the effect of Coercion?
Exercising coercion against someone amounts to commission of a crime punishable under
the Indian Penal Code. Where the consent of a party to a contract has been obtained using coercion,
the contract becomes voidable at the option of the party- the affected party or the plaintiff. He can
avoid it. Under Section 72, a person to whom money has been paid or anything delivered under
coercion, must repay or return it.
Onus or Burden of proof
The burden of proving that consent has been secured using coercion lies on the affected
party intending to avoid the contract.
Will threat to commit suicide amount to Coercion?
An attempt to commit suicide is punishable under the Indian Penal Code(IPC). A threat to
commit suicide does amount to coercion as decided by the Court in the following case:
Chikham Amiraju vs. Seshamma
A husband threatened to commit suicide if his wife and son did not execute to release deed
in favor of his brother respect of certain properties belonging to the wife. In view of the threat, the
wife and the son executed the release deed. The Court held that the threat of suicide amounted to
coercion within Section 15 and the release deed was, therefore, voidable at the option of the wife.
Duress and Coercion

DURESS COERCION
1. Unlawful detaining or threatening to detain 1. Unlawful detaining or threatening to detain
any property will not amount to duress. any property belonging to a person will amount to
2. It can be employed only against a party to coercion.
a
contract or his family members. 2. Coercion can be employed by or against a
stranger too.

II) UNDUE INFLUENCE:-

Sometimes, a party to a contract may, by reason of his position, exercise undue (excessive or
considerable) influence over the other.
Example:
 Taking undue advantage of his position, a doctor may prescribe certain tests for a patient,
with the intention of extracting exorbitant fees, even when such tests are not required. The patient, in
such a case, gets victimized.
Definition of Undue influence:
According to Section 16(1), “A contract is said to be induced by undue influence where the
relations substituting between the parties are such that one of the parties is in a position to dominate
the will of the other and uses that position to obtain an unfair advantage over the others.”
According to Section 16(2) States that "A person is deemed to be in a position to dominate the will
of another;
 Where he holds a real or apparent authority over the other. For example, an employer may
be deemed to be having authority over his employee. an income tax authority over to the assesse.

 Where he stands in a fiduciary relationship to other, For example, the relationship of

Solicitor with his client, spiritual advisor and devotee.

 Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by the reason of age, illness or mental or bodily distress"

Examples:
a) A person holding real or apparent authority over the other :
 Master and Servant
 Doctor and Patient
 Lawyer and Client
 Parent and Child
 Guardian and Ward
 Religious Guru and discipline
In the above relationships, undue influence is presumed.

In the following cases, however, there is no presumption of undue influence:

 Husband and Wife
 Landlord and Tenant
 Creditor and Debtor
b) A person standing in fiduciary relation to other ( Fiduciary relationship is the one based on trust
and confidence) :
 Trustee and Beneficiary
 Promoter and Company
 Principal and Agent
 Solicitor and Client
 Insurer and Insured
c) A person making contract with someone whose physical or mental capacity is affected by reason
of age, illness or mental or bodily distress:
 Medical Attendant or Car Giver and Patient.
Important cases on Undue Influence
(i). Mannu Singh vs. Umadat Pandey
A devotee, in this case, agreed to gift his entire property to a spiritual guru who promised to
save the devotee from all his sins. Held, the devotee’s consent was secured by undue influence.
(ii). Ranee Annapurni vs. Swaminath
A poor Hindu widow, in this case, agreed to pay 100% rate of interest to a moneylender on
the amount lent by him. She needed the amount to establish her right to maintenance. It was held in the
Court that the consent of the widow was obtained using undue influence, i.e., taking advantage of her
vulnerable position.
(iii). Sher Singh vs. Prithi Singh
In this case, an old man aged about 90 years, physically and mentally weak, executed a gift
deed in favor of a close relative who looked after him. Held, the relative was in a position to dominate
the will of the old man.
Effect of Undue Influence
When the consent of a party is obtained by undue influence, the contract becomes voidable
at the option of the party whose consent is so obtained.
Burden of proof
In case the plaintiff, i.e., the affected party wants to avoid the contract on the ground of
undue influence, he must be able to prove that-
(a) The defendant, i.e., the accused (the other party) was in a position to dominate his will;
(b) The other party actually used his position to obtain an unfair advantage; and
(c) The transaction is unreasonable.
Contract with a Pardanashin Woman
A Pardanashin woman is a Mushlim who wears the ‘Pardha’ to cover her face and who
cannot appear in public according to the Muslim Law. A person who enters into a contract with a
Pardanashin woman has to show that she has understood the implications of the contract and has
exercised her free will.
Distinction between Coercion and Undue Influence
The following are the points of differences between Coercion and Undue Influence:
COERCION UNDUE INFLUENCE
1. Law does not presume coercion under any 1. Law presumes undue influence under certain
circumstances. circumstances.
2. It may be exercised by or against a stranger 2. It is exercised only by a party to the contract
to the contract also. and not by a stranger.
3. It involves a threat to one’s life or property. 3. It involves the use of one’s position to one’s
4. It amounts to commission of a crime advantage.
punishable under the Indian Penal Code. 4. It does not amount to commission of a
crime.

III) FRAUD:-
When a party to an agreement makes a false representation of fact deliberately
(Intentionally) with a view to deceive the other, if amounts to fraud.
Definition of fraud:
According to Section 17, “Fraud" means and includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto
or his agent, or to induce him to enter into the contract-
(1) The suggestion, as to a fact, of that which is not true, by one who does not believe it to be true;
(When a person make representation about something as true when he knows it to be false)
(2) The active concealment of a fact by one having knowledge or belief of the fact;
(3) A promise made without any intention of performing it;
(4) Any other act fitted to deceive;

(5) Any such act or omission as the law specially declares to be fraudulent.

Essential Elements of Fraud

 The essential elements of fraud may be stated as follows:
 There must be a representation or assertion
 It must relate to a fact
 It must be made with the knowledge of its falsity or without belief in its truth or without
caring whether it is true or false.
 It must have induced the other party to act upon it.
 The other party acting on the faith of the statement must have suffered some loss.
What can the affected party do in case of Fraud? (Section 19)
The contract where the consent of a party has been obtained by fraud becomes a voidable
contract. The affected party has the following remedies:
(a) He can rescind (cancel or avoid) the contract. Until he avoids it, the contract remains valid. The
affected party, however, has to exercise his right of rescission (right to avoid) within a reasonable
time.
(b) He can insist on the performance of the contract upon the condition that he is put in the position
in which he would have been had the representation been true.
(c) He can claim damages.
When is the right of rescission, in case of Fraud, not available?
Under the following circumstances, the right of rescission is not available:
(a) Where the affected party had the means of discovering the truth by ordinary diligence.
(b) Where he gave consent in ignorance of the fraud.
(c) Where the party after becoming aware of the fraud takes a benefit under the contract.
(d) Where, before the contract is rescinded by the affected party, a third party acquires interest in
the subject matter. The third party, however, must acquire interest in the subject matter for value and
must act bona fide.
(e) Where the parties cannot be resorted to their original position.

IV) MISREPRESENTATION:-
It is a false representation of fact made by a party to an agreement without any intention to
deceive the other party.
Definition of misrepresentation:
According to Section 18, Misrepresentation means and includes-
(1) The positive assertion, in a manner not warranted by the information of the person making, it,
of that which is not true, though he believes it to be true;
(2) Any breach of duty which, without intent to deceive, gains an advantage of the person
committing it, or anyone claiming under him, by misleading another to his prejudice, or to the
prejudice of any one claiming under him.
(3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement.
Essential Elements of Misrepresentation
The essential elements of Misrepresentation are as follows:
1. There must be a representation or assertion by a party to a contract.
2. It must relate to a fact.
3. The person making it must honestly believe it to be true.
4. His intention is not to deceive the other party.
5. It must have induced the other party to act upon it.
6. The party acting upon it must have suffered some loss.
What can the affected party do in case of Misrepresentation?
The aggrieved or the affected party, in case of misrepresentation by the other party to the
contract, can-
1. Rescind or avoid the contract, or
 2. Insist on the performance of the contract upon the condition that he is put in the position in
which he would have been had the representation been true.
When does the affected party lose his right of rescission?
The affected party loses his right of rescission for misrepresentation under the following
circumstances:
1. If he had the means of discovering the truth by ordinary diligence.
2. If he gave his consent in ignorance of the misrepresentation.
3. If, after becoming aware of the misrepresentation, he has taken a benefit under the contract.
4. If before the contract is avoided, a third party acquires interest in the subject matter of the
contract.
5. If the parties cannot be resorted to their original position.
Distinction between Misrepresentation and Fraud
The following are the points of distinction between misrepresentation and fraud:
Misrepresentation Fraud
1. The party making the false statement 1. The party making the false statement does
believes it to be true. not believe it to be true.
2. There is no active concealment of truth. 2. There is active concealment of truth.
3. The false representation made is without any 3. The false representation made is with the
intention to deceive the other party to the contract.intention of deceiving the other party.
4. The party making the representation is
innocent. 4. The party making the representation not
5. The affected party cannot claim damages. innocent.
5. The affected party can claim damages.

V) MISTAKE:-
Mistake

Mistake of Law Mistake of Fact

 Mistake of Indian Law Bilateral Mistake

 Mistake of Foreign Law Unilateral Mistake

‘Mistake may be defined as’ an incorrect idea or opinion about something’ It is of two types: (a)
Mistake of law and (b) Mistake of fact.
(A) Mistake of law: A person may be under a mistake of-
 Indian law or
 Foreign law
Mistake of Indian Law: Every citizen of India is expected to be familiar with the law of the land.
“Ignorance of law is no excuse” (Ignorantia juris non excusat – in Latin).
A party to a contract cannot get any relief on the ground that he has done something in
ignorance of or making a mistake of the law of the land. The contract, therefore, is not voidable
(cannot be avoided).
Mistake of Foreign Law: A citizen of India, while in India, is not expected to be familiar with the
law of a foreign country. An agreement made by the parties in India making a mistake of a certain
foreign law, therefore, is void.
 (B) Mistake of Fact: It is classified into-
 Bilateral Mistake
 Unilateral Mistake
Bilateral Mistake: It means that both the parties to the agreement are under the mistake.
According to Section 20,
“Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void”
Bilateral Mistake may relate to-
(i). The subject matter of the contract or
(ii). The possibility of performing the contract
Bilateral mistake as to the subject matter
When the parties to an agreement are under a mistake relating to the subject matter, the
agreement is void. Mistake as to the subject matter includes the following:
1. Mistake as to the very existence of the subject matter
2. Mistake as to the identity of the subject matter
3. Mistake as to the quality of the subject matter
4. Mistake as to the quantity of the subject matter
5. Mistake as to the title of the subject matter
6. Mistake as to the price of the subject matter
Bilateral mistake as to the possibility of performing the contract
Sometimes, the parties to an agreement may believe that the agreement can be performed,
when, in fact, it cannot be performed due to physical or legal impossibility. In such a case, the
agreement is void.
1. Physical Impossibility
2. Legal Impossibility
Unilateral Mistake: Where one of the parties to a contract is under a mistake as to a matter of
fact, it is known as unilateral mistake. According to Section 22,
“A contract is not voidable merely because it was caused by one of the parties to it being under a
mistake as to a matter of fact”.

Exceptions
In the following circumstances, however, an agreement can be avoided when there is unilateral
mistake:

1. When there is a mistake as to the identity of the person contracted with

2. When there is a mistake as to the nature of the contract.

LEGALITY OF OBJECT
For an agreement to become a valid contract, it is important that its object is lawful.
According to Section 23,
“The consideration or object of an agreement is lawful, unless-
It is forbidden by law; or is of such a nature that, if permitted, it would defeat the
provisions of any law; or is fraudulent; or involves or implies injury to the person or property of
another; or the Court regards it as immoral, or opposed to public policy”.
In each case of these cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is void.

What is given in Section 23 is explained below with examples.

 1. If the object of the agreement is forbidden by law i.e., punishable under the criminal law or
prohibited by a special legislation.
Example:
X promises to get Y a Government job in consideration of Y paying a sum of Rs. 5 Lakhs. The
consideration or object of the agreement is illegal and, therefore, an offence punishable under the
criminal law.
2. If it defeats the provisions of any law (although not directly forbidden by law).
Example:
An agreement to pay an employee’ conveyance allowance’ disproportionate to his basic
salary is void as it is a device to evade income- tax and such an agreement defeats the provisions of the
Income- Tax Act.
3.If it is fraudulent
Example:
There is an agreement between P,Q and R to start finance business, induce the public to
deposit by offering a very high rate of interest and later abscond with the depositors’ money. The
agreement is fraudulent in nature.
4. If it involves or implies injury (harm) to the person or property of another
Example:
The editor of a local newspaper receives a big amount from X and promises to publish a
defamatory article against Y. The agreement is unlawful.
5. If the Court regards it as immoral
6. If the Court regards it as opposed to public policy (harmful to the welfare of the public)
Example:
Any agreement the object of which is to make quick money by indulging in such activities
as black marketing, adulteration etc. is illegal being opposed to public welfare.

VOID AGREEMENT
An agreement that is not valid and, therefore, not enforceable in a Court of law is void. The
object of a void agreement may be lawful.
Definition of Void Agreement: A void agreement is defined under section 2(g) of Indian Contract
Act, 1872, as an agreement which cannot be enforceable by law, i.e. such agreements cannot be
challenged in the court of law. Such an agreement lacks legal consequences, and so, it does not confer
any rights to the parties concerned. A void agreement is void from the day, it is created and can never
turn into the contract
Examples:
1. An agreement that creates only social obligations.
2. An agreement without consideration
3. An agreement the meaning (terms) of which are uncertain (Section 29)
4. An agreement incapable of performance
Effects of a Void Agreement
(a) The obligation arising under a void agreement cannot be enforced.
(b) Restitution or restoration benefits will be allowed, that is, the party who has paid money under
a void agreement can recover it.

An agreement may be void if any of the following:

 Made by incompetent parties (e.g., under the age of consent, incapacitated)

 Has a material bilateral mistake

 Has unlawful consideration (e.g., promise of sex)

  Concerns an unlawful object (e.g., heroin)

 Has no consideration on one side

 Restricts a person from marrying or remarrying

 Restricts trade

 Restricts legal proceedings

 Has material uncertain terms

 Incorporates a wager, gamble, or bet

 Contingent upon the happening of an impossible event

 Requires the performance of impossible acts.

ILLEGAL AGREEMENT:
An illegal agreement under the common law of contract, is one that the court will not enforce
because the purpose of the agreement is to achieve an illegal end. The illegal end must result from
performance of the contract itself. The classic example of such an agreement is a contract for murder.
An agreement is illegal if the activities of the parties to it:
(a) Involves the commission of a crime; or
(b) Violate basic public policy; or
(c) Are immoral in nature.
Such an agreement cannot be enforced in a Court of Law.
Effects of an Illegal Agreement:
(a) No action can be taken to enforce the obligations arising out of an illegal agreement.
(b) The collateral transaction to an illegal agreement also becomes illegal.
(c) Restitution benefits are not allowed.
(d) In case of equal guilt, the defendant is in a much better position
(e) An illegal act is a crime punishable under the Indian Penal Code.

AGREEMENTS OPPOSED TO PUBLIC POLICY

Agreements opposed to public policy are those that are detrimental to the interests of the
people of the society. These are:
 Agreement with an alien enemy
 Agreement to stifle prosecution
 Maintenance and Champerty
 Sale or Transfer of Public Offices and Titles
 Interest opposed to Duty
 Denial of Parental Rights
 Restriction of one’s personal liberty
 Marriage brokerage
 Payment of Dowry
 Agreement in restraint of marriage
 Agreement in restraint of trade
 Agreement in restraint of legal proceedings
 UNIT – IV
PERFORMANCE OF CONTRACT
A contract is performed when the parties to it fulfill their respective obligations arising
under it.
Example:
X contracts with Y to supply 100 litres of coconut oil @ Rs. 160 per litre on a specific day.
The contract is performed when on the day specified. X delivers 100 litres of coconut oil to Y and Y
makes a payment of Rs. 16,000.
According to Section 37,
‘ 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 of any other
law’.
‘Offer to perform’ or ‘Attempted Performance’ or ‘Tender’
Sometimes, the promisor may offer to perform his obligation under the contract on the due
date but the promisee may refuse to accept performance. This is what is known as ‘Attempted
Performance’ or ‘Tender’.
According to Section 38,
‘Where a promisor has made an offer of performance to the promisee and the offer has not
accepted, the promisor is not responsible for non- performance nor does he thereby lose his right under
the contract’.
Thus, attempted performance or tender is equivalent to actual performance and the
promisor will not be responsible for non- performance. The promisor also does not lose his right to
take legal action against the promisee for the breach of contract.
Example:
In the example give above, if Y refuses to take delivery and pay for the 100 litres of
coconut oil as agreed earlier, X can take legal action against him for the breach of contract.
CONDITIONS OF A VALID OFFER TO PERFORM
Offer of performance or tender, to be valid, must fulfill the following conditions:
1. Unconditional: An offer to perform is unconditional if it is made as per the terms of contract.
Example: P offers to supply Q the required quantity of butter if Q agrees to buy a certain quantity
of ghee also. The offer to perform is conditional and, therefore, invalid.
2. Proper Time: An offer performs must be made within the stipulated time and during business
hours on a working day.
3. Proper place: It must be made at the stipulated place. If there is no stipulation as to place, it
must be made at the promisee’s place of business.
4. Opportunity to Examine: If the offer is to deliver certain goods, the promisee must be given a
reasonable opportunity to examine the goods to ensure that it is the same as what the promisor is
bound to deliver.
5. For the whole obligations: The offer to perform must be in respect of the whole obligation of
the promisor and not for a part of the whole obligation.
Example: X, who agrees with Y to supply 100 bags of rice on a particular day, supplies 80 bags.
The offer to perform is not valid.
6. To the proper person: To be valid, the offer to perform must be made to the promisee or his
duly authorized agent.
7. Payment in Legal Tender Money: Where a debtor makes an offer to pay the creditor must be for
the exact amount due and in the legal tender money.
Effects of failure of a party to perform promise wholly
According to Section 39,
 Where a party to a contract fails to perform his promise in its entirely, the promisee may
put an end to the contract. But if the promisee has, by words or conduct, given his consent to the
continuance of the contract, he cannot avoid it afterwards.
Examples:
(a) There is a contract between a singer and a manager of a star hotel whereby the former would
sing at the hotel every Sunday during a specified time for the next six months. The hotel manager
agrees to pay the singer Rs. 5,000 for each performance. After singing on the first three Sundays, the
singer fails to turn up to perform on the fourth Sunday. The hotel manager is at liberty to put an end to
the contract.
(b) If in the previous example, the singer turns up to perform on the fifth Sunday and the hotel
manager gives his consent to it, he cannot later on put an end to the contract. He is, however, entitled
to claim damages from the singer for his failure to sing on the fourth Sunday.
PERSONS WHO MUST PERFORM THE CONTRACT
According to Section 40,
If the contract provides for the performance of the promise by the promisor himself, such
promise must be performed by the promisor. In other cases, it may be performed by the promisor a
person authorized by him.
1. The promisor himself
Example: There is a contract between X, a Singer, and Y, an organizer of music concerns by
which the Former would sing at a concert organized by the later on a specific day at a particular time.
The promise, in the case, must be performed by X only.
2. A person authorized by the promisor
Example: P promises to pay Q a certain sum of money. The promise may be performed by P or
a person authorized by P
3. Legal Representative
In the event of the death of a promisor before fulfilling is promise, a legal representative of the
deceased inbound to fulfill it ( Sec 37, paragraph 2 )
4. Third Person
Where a promisee accept performance of the promise from a third party, He cannot, afterwards,
enforce it against the promisor ( Sec 41 )
5. Joint promisors
When the there are joint promisor for a promise, all such persons must jointly fulfill their promise
unless a contrary intension appears from the contract if any of them dies, is legal representative must,
jointly with the surviving promisors, fulfill the promise. If all the joint promisors die, their legal
representative must fulfill the promise jointly (Sec 42).
Devolution of Joint Liabilities
`Devolution` means transfer or passing over from one person another. According to Section 42,
when a joint promisor dies, his legal representative must fulfill the promise jointly with the surviving
promisors.
Section 43 explains the performance of joint promises as follows:
(a) When two or more persons make a joint promise in the promisee may, in the absence of express
agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the
promise.
Example: P, Q and R jointly to pay S Rs.3000. S may compel either P or Q or R or all or any of
the joint promisors to pay him the whole amount promised.
(a) When one of the joint promisors alone performs the whole of the promise, he may claim an
equal contribution from the other joint promisor.
Example: In the above example, if P alone pays S Rs.3000, he (P) may claim Rs.1000 each from
Q and R
 (a) If any one of the joint promisors makes default in paying contribution, the remaining joint
promisors must bear the loss arising from such default in equal shares.
Example: If in the example given for case (b) above, R makes default in paying contribution, P
can recover Rs.1500 from Q
According to Sec 44,
Where the promisee releases any of the joint promisors, it does not release the joint
promisors from liability. The joint promisor so releases remains liable to the other joint promisors.
Example: A, B and C jointly owe D Rs. 6,000. D releases A from his liability. This does not
release B and C. A remains liable to B and C for payment of contribution.
Devolution of Joint Rights
According to Section 45,
When a person makes a promise to many promisees, unless a contrary intention appears
from the contract, all such joint promisees can claim performance. If any one of the joint promises
dies, his legal representative along with the surviving joint promisees can claim performance. If all
the joint promisees die, all their legal representatives can jointly claim performance from the promisor.
Example: X and Y jointly lend Rs.10, 000 to Z. If X dies, the legal representative of X along with
Y can jointly claim repayment of the loan by Z. In case both X and Y die, their legal representatives
can jointly claim repayment by Z.
Time and Place of Performance
Sec 46 to 50 lay down the rules in respect of time and place of performance of contract. These are
stated below.
1. Where by the contract, a promisor is to perform his promise without application by the promisee
and no time for performance is specified, the promise must be performed within a reasonable time
(Section 46).
The question “what is reasonable time” is, in each particular case, a question of fact (Explanation
to Sec 46).
2. Where a promise is to be performed on a certain day and the promisor has undertaken to
perform it without application by the promisee, the promisor may perform it any time during the usual
hours of business on such day and at the place at which the promise ought to be performed (Sec 47)
Example: X promises to deliver certain goods at Y’s warehouse on 15 th June. On that day, X brings
the goods to Y’s warehouse but after the usual hours of business and the goods, therefore, are not
received. X has not performed his promise.
3. When a promise is to be performed on a certain day and the promisor has not undertaken to
perform it without application by the promisee, it is the duty of the promise to apply for performance
at a proper place and within the usual hours of business (section 48)
The question “what is proper time and place” is, in each particular case, a question of fact
(Explanation to section 48)
4. When a promise is to be performed without application by the promisee and no place is fixed for
the performance of it, it is the duty of the promisor to apply to the promisee to fix a reasonable place
for the performance of the promise and to perform it at such a place (section 49)
Example: P contracts to supply 100 bags of wheat to Q on a certain day. P has to apply to Q to fix
a place where Tue 100 bags of wheat can be delivered.
5. The performance of any promise may be made in any manner or at any time which the promisee
prescribes or sanctions (section 50)
Examples:
(a) X owes Y Rs.5,000. Y accepts some of X's goods in reduction of the debt. The delivery of
goods by X operates as part payment of the amount due by him.
(b) M, to whom N owes Rs.10,000, asks the latter to send a promissory note for the amount due by
post. The debt is discharged the moment the promissory note addressed to M is duly posted by N.
 Reciprocal promises:
According to Section 2(f) “Promises which form the consideration or part of the consideration for
each other are called reciprocal promises"
Example: P’s promise to sell and deliver his bike to Q for Rs. 25,000 on a certain day and Q's
promise to pay Rs.25, 000 form the consideration for each other and, therefore, are reciprocal
promises.
Rules regarding performance of reciprocal promises: The rules in respect of performance of
reciprocal promises are stated below.
1. When a contract consists of reciprocal promises to be simultaneously performed, the promisor
need not perform his promise unless the promised is ready and willing to perform his reciprocal
promise (section 51)
Example: There is a contract between P and Q by which the former would deliver certain goods to
the latter on a certain date and the latter would pay for the goods upon delivery. P need not deliver
unless Q is ready and willing to pay the price and Q need not pay the price unless P is ready and
willing to pay the price and Q need not pay the price unless P is ready and willing to deliver.
2. Where the order in which reciprocal promises are to be performed is expressly fixed by the
contract they shall be performed in that order and where it is not expressly fixed by the contract, they
shall be performed in that order which the nature of the transaction requires. (Section 52)
Examples:
(a) The user of cellular phone service opting for pre-paid service has to pay first. If he opts for
post-paid service, he can pay letter.
(b) Consumers of electricity pay for the units of power already consumed and not for the power to
be consumed.
3. When a contract contains reciprocal promises and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party so prevented
and he is entitled to compensation from the other party for any loss which he may sustain in
consequence of nonperformance of the contract (sec 53)
Example: P contracts with Q to carry out some repair work at the latter's house for a consideration
of Rs. 20,000. On the day when the work is to start, Q prevents P from doing the job. The contract is
voidable at the option of P. If the rescinds or avoids it, he is entitled to recover from Q compensation
for any loss which he has sustained by the non-performance of the contract.
4. Where the nature of the reciprocal promises is such that one of them cannot be performed till the
other party performs his promise and if the other party fails to perform his promise, he cannot claim
performance from the first party. He also has to compensate the first party for any loss sustained by
him (section 54)
Example: M contracts with N to build a house for the latter for a certain price and N promises to
supply the scaffolding and timber necessary for the work. N fails to supply as promised. M cannot
fulfill his promise. N has to compensate M for any loss sustained by him due to the non- performance
of the contract.
5. Where there are two sets of reciprocal promises- first being legal and the second illegal, the first
set of promises is a contract and the second is a void agreement (sec 57)
Example: There is an agreement between A and B that (I) A shall let out his house to B upon a
monthly rent of Rs.5000 and (ii) B shall pay A Rs. 25000 per month if the house is used by B for
certain illegal purposes. The first set of promises results in a contract and the second is a void
agreement.
Time as essential factor in a contract: Section 55 deals with the effect of failure to perform a
contract within the stipulated time when the time factor is important and when it is not.
In a contract where time is an important factor and if there is a failure on the part of the promisor
to fulfil his obligations within stipulated time, the contract becomes voidable at the option of the
promisee (section 55 paragraph 1)
 If, in a contract, time is not an important factor, failure on the part of the promisor to fulfill his
obligation within the stipulated time does not make the contract voidable. But the promisee is entitled
to compensation for any loss caused to him by such failure (section 55 paragraph 2)
If, in case of a contract voidable on account of the promisor's failure to perform his promise within
the stipulated time, the promisee accepts performance of such promise, he cannot afterwards claim
compensation for any loss caused by the non - performance of the promise at the time agreed (section
55 paragraph 3)
Appropriation of payments
The question of appropriation of payment will arise when a debtor, who owes different amounts to
creditors, makes a payment of a particular sum. The question here is ' Against which debt should the
payment be applied?'
Sec 59, 60 and 61 lay down the rules in respect of appropriation of payments. These are stated
below.
1. Where the debtor, owing several distinct debts to one person, makes a payment to him either
with express intimation or under circumstances implying that the payment is to be applied to the
discharge of some particular debt, the payment, if accepted, must be applied accordingly (section 59)
Examples:
(a) P owes Q, among other debts, Rs. 2000 upon a promissory note that falla due on 15th June, P
pays Rs. 2000. The payment is to be applied to the discharge of the promissory note
(b) X owes Y, among other debts, Rs. 665. Y writes to X demanding payment of this sum. X sends
Rs. 665 to Y. The payment is to applied to the discharge of the debt of which Y had demanded
payment.
2. Where the debtor omits to intimate and there are no other circumstances indicating to which
debt the payment is to applied, the creditor may apply it at his discretion to any lawful debt actually
due and payable to him by the debtor. He may even apply it to a debt barred by the law of Limitation
(section 60)
3. Where neither party makes any appropriation, the payment shall be applied in discharge of the
debts in order of time whether or not they are time barred. If the debts are of equal standing, the
payment shall be applied in discharge of each proportionately (section 61)
Assignment of contract: Assignment of contract refers to transferring one' s contractual rights and
liabilities under the contract to a third person. It may take place-
(I) By the act of parties or
(II) By operation of law
(I) Assignment by the act of parties
This again may be discussed under:
(a) Assignment of contractual obligations and
(b) Assignment of contractual rights
(a) Assignment of contractual obligations:
The following are the important rules in respect of assignment of liabilities or obligations by a
party to a contract:
1. Contractual obligations involving personal skill or ability cannot be assigned
Example: A film actor or sports man cannot as a his contractual application to anybody else
2. The promise cannot compel the promisee to accept any other person as been liable on the
promise
Example: X owes Y Rs. 5000 and Z owes X similar amount. X cannot ask Y to recover the
amount from Z unless Y accepts performance by Z.
(b) Assignment of contractual rights:
The rules regarding assignment of contractual rights and benefits are as follows
1. The rights and benefits under contract not involving personal skill may be assigned subject to
all equities between the original parties
 Example: P sells certain goods worth Rs.5000 to Q on credit. Q finds the goods to be defective
and, therefore, wants to return the same. P refuses to take back the goods and also assigns the amount
due by Q to R. Q can set up the defective nature of goods as a defense against R.
2. An actionable claim, e.g., shares in a company can be assigned. But each an assignment must be
effected by an instrument in writing.
(II) Assignment by operation law: Assignment by operation of law takes place under the
following two circumstances:
1. Death of a party to a contract: The rights and liabilities of a party to a contracts, upon his death,
pass on to his legal heirs.
2. Insolvency of a party: The rights and liabilities of a party to a contract, upon his insolvency, pass
on to the Official Assignee or Receiver.
DISCHARGE OF CONTRACT
Discharge of contract takes place when the rights and obligations created by it come to an end. It
results in the termination of the contractual relationship between the parties to a contract.
Modes or Methods of Discharge of Contract
Discharge of contract may take place by any of the modes indicated in the chart below:

MODES OF DISCHARGE OF CONTRACT

Breach Lapse of time

Mutual consent
Performance

Impossibility Operation of Law

I. Discharge by Performance: Discharge of contract by performance may fall under the following
two categories:
a) Actual Performance and
b) Attempted Performance or Tender

a) Actual Performance: The usual manner in which a contract is discharged is by the parties to it
fulfilling their respective obligations arising under it.
Example: There is a contract between X and Y by which the former is to sell his bike to the latter
for Rs.25, 000. The contract gets discharged upon X delivering the bike to Y and Y paying agreed sum
to X.
b) Attempted Performance or Tender: When the promisor offers to perform his obligation as per
the terms of the contract but the promisee does not accept the performance, it is known as ‘Attempted
Performance’ or ‘tender’. According to Section 38,
Where a promisor has been made an offer of performance to the promisee, and the offer has not
been accepted, the promisor is not responsible for non- performance, nor does he thereby lose his
rights under the contract.
 Tender or performance, thus, is equivalent to actual performance. It does not make the promisor
responsible for non-performance and at the same time gives him the rights to sue the promisee for the
breach of contract.
II. Discharge by mutual consent: A contract comes into existence by the mutual consent of the
parties. In the same manner, the parties may agree mutually to terminate it.
The various ways of discharge of contract by mutual consent are indicated in the following chart:

DISCHARGE OF CONTRACT BY MUTUAL CONSENT

Novation Rescission Waiver Merger

Alteration Remission

a) Novation: ‘Novation’ refers to substitution of a new contract for the original contract. The new
contract may be either between the same parties or between different parties. The consideration for the
new contract is the discharge of the old contract.
Example: X owes Y Rs. 10,000 under a contract. It is agreed between X,Y and Z that Y shall
henceforth accept Z as his debtor, instead of X. The debt due by X to Y under the old contract, thus,
has ended and a debt due by Z to Y has been created under the new contract.
b) Rescission: It refers to cancellation of the contract. It may take place by the mutual consent of
the parties or by the failure of one of the parties to perform his promise.
Examples:
(a) R, an actor, and K, a producer enter into a contract to make a film. After sometime, both find
the story outdated. They may rescind the contract by mutual consent.
(b) P agrees to make a showcase for Q at the latter’s residence on a specific day and Q agrees to
pay for it upon the completion of the work. P does not turn up for work. Q may rescind the contract.
c) Alteration: Alteration of a contract takes place when, with the mutual consent of the parties, the
terms of the contract are varied or changed. The old contract, in such a case, is discharged.
Example: M enters into a contract with N in April to let out his flat to the latter with effect from
June upon a monthly rent of Rs.5,000. Later, M tells N that the flat will be ready for occupation only
with effect from August. N too requests M to reduce the monthly rent Rs.4, 500. Both M and N decide
to give effect to these changes in the contract made earlier. The net result is that the old contract gets
discharged by reason of the alteration of terms.
Section 62 deals with the effect of novation, rescission and alteration of contract. According to it,
if the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original
contract need not be performed.
d) Remission: Acceptance of a lesser fulfillment of the promise is what is called ‘ remission’.
Under Section 63, the promisee may dispense with or remit the performance of the promise by the
promisor. The promisee may also extend the time for performance or accept insteand of it any
satisfaction which he thinks fit.
 Example: X owes Y Rs. 5,000. He pays Rs. 3,000 and Y accepts it in full settlement of his claim.
The whole debt is discharged.
e) Waiver: ‘To waive’ means not to insist on a certain obligations of a person arising under a
contract under certain circumstances.
Example: The Government may always come forward to waive the interest due from farmers on
their farm loans during periods of monsoon failure.
f) Merger: Merger takes place when an inferior of a person arising under a contract combines with
a superior right arising under the same or a different contract.
Example: R is a tenant, occupying the flat of S under a contract. Latter, R agrees to buy the flat
and enters into a contract with S. R’s inferior right as a tenant, thus, merges with his superior right as
the purchaser of the flat.
III) Discharge by Impossibility: The provisions in respect of ‘an agreement to do an impossible
act’ are contained in Section 56. According to Section 56, paragraph 1,
‘An agreement to do an act impossible in itself is void.’ The existence of the impossibility
may or may not be known to both the parties.
(a) When both the parties to the agreement know the existence of the impossibility- In this case,
the agreement is void ab initio
Example: X agrees with Y to discover treasure by magic. The agreement is void.
(b) When both the parties to the agreement do not know the existence of the impossibility – In this
case, the agreement is void on the ground of mutual mistake.
Example: M agrees to sell his dog to N. Unknown to both the parties, the dog was dead at the time
of making the agreement. The agreement is void.
(c) When the promisor alone knows the existence of impossibility – In this case, the promisor must
compensate the promisee for any loss that the latter may sustain due to the non- performance of the
promise (Section 56, paragraph 3)
Example: X, a Hindu, who is married to Y, promises to marry Z. Z is not aware of X’s ealier
marriage. Such a practice of having more than one wife is known as ‘polygamy’ and is not allowed
under the Hindu law. X must compensate Z.
Supervening Impossibility: Impossibility that arises subsequent to the formation of the contract is
known as ‘Supervening Impossibility’. In such a case, the contract becomes void.
The various circumstances under which a contract is discharged due to supervening impossibility
are shown in the following chart:

DISCHARGE BY SUPERVENING IMPOSSIBILITY

Destructive of Death or Declaration of Change in the

the subject personal War state of a thing
matter incapacity forming the
Basis of
Contract

Change of Law

Let us discuss these now.

 1. Difficulty in performance: A contract is not discharged merely because it has become more
difficult to perform due to certain unforeseen events or delays.
2. Commercial Impossibility: A contract is not discharged because it has become unprofitable.
3. Default of a Third Person: Sometimes the promisor may rely on the work of a third person for
the performance of the contract. If due to the default of such a third person, the contract is not
performed, it cannot be discharged.
4. Declaration of war: Unless the parties specifically agree, a contract cannot be discharged for
such happenings as strikes, lock – outs or civil disturbances.
5. Change in the state of a thing forming the basis of contract: If a contract is entered into for
several objects, the failure of one of the objects does not discharge the contract.
IV) Discharge by operation of law: A contract is discharged by the operation of law under the
following circumstances:
1. By the Death of the Promisor: Where the personal skill or ability of the promisor is the very
basis of the contract, it gets discharged on his death.
2. By Insolvency: A contract gets discharged when a party to it is declare insolvent, i.e., unable to
pay his debts.
3. By Unauthorized Material Alteration: If a party to a contract makes any material alteration in
the contract without the consent of the other party, the other party can avoid the contract.
4. by liabilities and rights occurring to the same person: A situation like this may arise when, for
example, a
bill accepted by a debtor is endorsed to him.
V) Discharge by Breach: A breach of contract takes place when a party to a contract fails to fulfil
his
obligations arising under it. The way in which breach of contract may occur may be shown as
follows
BREACH OF CONTRACT

ANTICIPATORY
ACTUAL BREACH BREACH

Express Implied
On the due date During
Performance

1) Actual breach of contract: It may take place in two ways:

(a) On the due date: When one party to a contract fails to perform his obligation on the due date,
actual breach of contract occurs.
Example: X contracts with Y to sell and deliver 10 bags of rice @ Rs. 1,000 per bag on 1 st June
2005. X fails to deliver as promised. A breach of contract occurs and Y can initiate legal action.
(b) During Performance: Actual breach of contract also occurs when a party, after having
performed a part of the contract, refuses to perform further.
Example: P contracts with Q to supply 500kgs. Of rice@ Rs. 18 per kg. Every month for the next
6 months. P supplies for the first three months and fails to supply thereafter. This result in a breach of
contract and Q can initiate legal action against P.
 2) Anticipatory breach of contract: It takes place when a party to a contract declares his
intention of not performing his obligation before the performance is due. This may be done either in an
express or in an implied manner.
(a) Express Anticipatory Breach of Contract: When the promisor expressly makes known to the
promisee of his intention to commit a breach.
Example: M contracts with N to supply 100 litres of coconut oil at a certain price on 30 th June. If,
before 30th June, M informs N that he will not be able to supply as promised, anticipatory breach of
contract is said to have occurred.
(b) Implied Anticipatory Breach of Contract: When the promisor does some act that makes the
performance of his promise impossible.
Example: R contracts with S in May to sell his bike for Rs. 25,000 on 30th June. S comes to know
that on 1st June itself, R has sold the bike to T. This results in an anticipatory breach of contract in an
implied manner.
When a party to a contract commits a breach, the other party is discharged from his obligation and
he gets the right to proceed against the party at fault.
VI) Discharge by Lapse of Time: Under the Limitation Act, 1963, a contract must be performed
within a specified period known as the period of limitation. If the promisee fails to take legal action
within the period of limitation, he loses his legal remedy.
(a) When goods are sold on credit without any stipulation as to the time for payment, the amount
due must be recovered within 3 years from the date of delivery of goods.
Example: P sold worth Rs. 10,000 on credit to Q on 1 st June 2001 without any stipulation as to the
time for payment. P should have realized the amount before 1st June 2004.
(b) When goods are sold on credit and the time for payment is specified in the contract, the amount
due must be recovered within 3 years from the date of expiry of the period of credit.
Example: X sold goods worth Rs. 10,000 on credit to Y on 1 st June 2001 and allowed Y as period
of 3months for payment. X should have recovered the amount before 1st September 2004.

REMEDIES OF BREACH OF CONTRACT

A contract imposes upon the parties certain obligations. When the parties fulfil their respective
obligations, the contract is said to be performed or executed. But sometimes, a party to a contract may
not fulfil his promise or obligation arising under it. In such a case, he is said to be committing a breach
of contract.
Breach of contract, thus, takes place when a party to a contract fails to fulfil his obligations arising
under it.
When a breach of contract takes place, the plaintiff or the affected party becomes entitled to certain
remedies. These are:
1. Rescission
2. Damages
3. Quantum Meruit
4. Specific Performance
5. Injunction

Each of these has been dealt with in this chapter.

1) Rescission: The right of a party to a contract to avoid his obligations arising under it is what is
called ‘Rescission’. When one party to a contract commits a breach, the other party may treat the
contract as rescinded or cancelled and thereby relieve himself of his obligations.
Example: S agrees to supply a bag of rice to B on a specific date and B agrees to pay for it upon
delivery. S fails to supply. B is relieved of his obligation to pay.
The right of rescission is available to the plaintiff in case of a voidable contract. He, however, will
lose right to rescind under certain circumstances as mentioned below:
 a) If, after becoming aware of his right to rescind, the affected party takes a benefit under the
contract.
b) If the subject matter of the contract has been consumed or destroyed.
c) If the third party has acquired rights in the subject matter of the contract in good faith and
for value.

These have already been dealt with in the Chapter titled ‘Free consent’.
According to Section 64, a party rescinding a voidable contract has to restore any benefit that he
has received under the contract, to the party who has provided it.
Section 75 makes it clear that if a person rightfully rescinds a contract, he is entitled to
compensation for any damage that he has sustained through the non – fulfillment of the obligation by
the other party.
2) Damages: ‘Damages’ are nothing but the monetary compensation awarded to the affected party
by the Court for the loss suffered by him in view of the breach of a contract. The object of awarding
damages is to put the affected party, to a certain extent, in the position in which he would have been
had the contract been performed. Damages, however, may not provide the affected party complete
relief in all cases and in all matters.
Types of Damages: The damages awarded to an affected party in case of breach of contract may
be the following types:
1. Ordinary damages
2. Special damages
3. Vindictive damages
4. Nominal damages
5. Damages for inconvenience and discomfort
6. Damages for loss of reputation

These have been explained below:

1. Ordinary Damages: The damages that arise ‘naturally in the usual course of things from the
breach’ (Section 73) of a contract are what are called ‘ordinary damages’. Such damages are the direct
consequence of the breach of contract.
Example: D, a supplier of cement agrees to supply 50 bags of cement @ Rs. 150 per bag to E, a
building contractor, on a certain date. E is to pay the price upon delivery. D fails to supply on the due
date and the open market price of cement on that date is Rs. 165 per bag. E can claim damages @ Rs.
15 per bag.
2. Special damages: The damages that the parties to the contract know, when they make the
contract, to be likely to result from the breach (Section 73) are called ‘special damages’. Such
damages can be claimed only if the unusual circumstances that would result in greater loss in case of
breach are brought to the notice of the promisor. In other words, an advance notice of such damages
has to be given.
3. Vindictive Damages: These are also known as ‘exemplary damages’ or ‘extraordinary
damages’. Damages of a vindictive nature, i.e., tending to take revenge, can be claimed only under the
following two circumstances:
a) Breach of promise to marry and
b) Wrongful dishonour of a cheque by a banker, i.e., when the customer has sufficient funds
in his account.

4. Nominal Damages: These are damages awarded to the affected party who has not actually
suffered any loss due to the breach of contract by the other party. Such damages, when awarded, may
give the plaintiff the satisfaction that he has proved his point and won.
 Example: B was given employment for a certain period by a partnership firm comprising of four
partners. The firm was dissolved before the expiry of the period for which B was employed. Two of
the partners decided to continue the business and offered to employ B. B refused. It was held that B
could claim only nominal damages, as he suffered no loss.
5. Damages for Inconvenience and Discomfort: Such damages are awarded to the aggrieved
person for the physical inconvenience and discomfort caused by him.
Example: H, with his wife and children, took a ticket for midnight train. But they were transported
to a wrong place due to the negligence of the railway authorities. As a result, they had to walk several
miles to reach home. It was held that H could recover damages for the inconvenience caused to him
and his family. It was further held that he could recover nothing for the medical expenses of his wife
who caught cold as it was a remote consequence.
6. Damages for loss of Reputation: The creditworthiness of a businessman is something that is
very important for him to stay in business and to sustain its reputation. When a cheque issued by a
businessman gets dishonoured, his business image is bound to suffer.
A businessman whose cheque has been wrongfully dishonoured by the bank can recover damages
in respect of any loss to his business reputation due to such wrongful dishonour. The basis for the
payment of damages by the bank is ‘the smaller the amount of the cheque dishonoured, the greater the
amount of damages awarded’.
3) Quantum Meruit: ‘Quantum Meruit’ means ‘as much as merited ‘or ‘as much as earned’. In
simple terms, it means payment in proportion to the amount of work done.
A person, who has started doing some work for another under a contract but is unable to complete
it, can claim his remuneration for the work already done.
Similarly, if a person requests another to render some service and does not mention anything about
remuneration, the person rendering the service is entitled to receive quantum meruit, i.e., what he
deserves.
The right to claim upon meruit does not arise out of contract. It arises out of a quasi- contractual
obligation as required by law.
When will a claim upon Quantum Meruit Arise?
The following are the various circumstances in which a claim upon quantum meruit will arise:
1. When an agreement is void or when a contract becomes void (Section 65): In such a case,
the person who has received any benefit must restore it to the person who has provided it or
compensate him for the same.

Example: A person is appointed as a clerk in a concern. After he has served for 3 weeks, it has
been found out that certain rules have not been followed in his appointment and, therefore, his service
has been terminated. He can get payment for the work he has done upon quantum meruit.
2. When a person does something without any intention to do so gratuitously (Section 70): In
such a case, the person getting the benefit must compensate the person who has given it.

Example: A trader leaves certain goods at X’s residence. X treates the goods as his own. He
has to pay the trader.
3. When there is no specific agreement as to remuneration for a certain service rendered: In
such a situation, the beneficiary has to pay the person who has rendered the service a reasonable
remuneration. If need arises, the court may be approached to determine the reasonable remuneration.
4. When one party is prevented from completing this task.

Example: In this case, P was engaged to write for a magazine a series upon a certain fee. After the
release of new issues, the publication of the magazines was stopped. The court held that P could claim
payment upon quantum meruit for the work already done.
 5. When a contract is divisible, i.e., does not require complete performance for claiming
remuneration: In such a case, the party who has rendered some service can claim payment upon
quantum meruit. But if the contract is indivisible, i.e., requires complete performance for claiming
remuneration, the party who has rendered some service cannot claim payment for the work already
done.
Example: In this case, S, who undertook to build a house for a certain sum for H, abandoned the
contract after having done the work up to a certain level. Afterwards, H completed the work himself. It
was held that S could not get payment for the work already done by him upon quantum meruit.
6. When an indivisible contract is fully but badly performed: In this case, the person who has done
the work can claim his remuneration but the other party can make a deduction for bad work.
Example: X contracted to decorate Y’s flat for a sum of 750 pounds. Payment was to be made
upon the completion of the entire work. The work was fully but badly completed. A sum of 204
pounds was required to rectify the defect. The Court held that X could claim only a sum of 546 pounds
for the work done by him.
4) Specific Performance: Payment of damages to the aggrieved or affected party, in case of breach
of contract, may not always be an adequate remedy. In certain cases, the Court may direct the party
committing the breach to fulfil his obligation according to the terms of the contract.
‘Specific Performance’, thus, is a direction by the Court, on a suit filed by the plaintiff, requiring
the other party to fulfil his promise.
The Court may order specific performance of the contract under the following circumstances:
(a) Where payment of damages will not be an adequate remedy.
(b) Where the exists no basis for determining the actual damage suffered by the plaintiff.
(c) Where the defendant is not in a position to pay monetary compensation.

However, no suit for specific performance is maintainable under the following circumstances:
(a) Where damages provide adequate relief.
(b) Where the contract, by its very nature, is revocable.
(c) Where the contract is of a personal nature, e.g., contract to marry.
(d) Where the contract is made by a company in excess of its powers as laid down in its
Memorandum of Association
(e) Where the Court cannot supervise the performance of the contract, e.g., construction work.
(f) Where the contract is made by trustees in breach of their trust.

5) Injunction: ‘Injunction’ is an order of the Court preventing a person from doing a particular act.
It is also known as ‘Stay Order’.
Example: In this case, N, a film actress, agreed to work exclusively for W and for no one else for a
period of one year. But during the year she signed a contract to work for Z. It was held that she could
be restrained by injunction from doing on.
An injunction, thus, is necessary to restrain a person from doing what he promised not to do.
 UNIT- V: THE SALE OF GOODS ACT, 1930
FORMATION OF CONTRACT OF SALE
The law relating to sale of goods is contained in the Sale of Goods Act, 1930. Prior to this Act, the
law in respect of sale of goods was contained in the Indian Contract Act, 1872.
Definition of Contract of Sale: According to Section 4(1), ‘A contract of sale is a contract
whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price’.
Contract of sale includes both a sale and an agreement to sell.
If the property in the goods (ownership) is transferred from the seller to the buyer immediately it is
known as ‘sale’. On the other hand, if the property in goods is to be transferred to the buyer in future
or subject to the fulfillment of certain conditions it is known as an ‘agreement to sell’ – Section 4(3).
Essentials of a contract of sale
The following are the essential elements of a contract of sale:

Goods only movable

Two parties properties

ESSENTIALS OF A
CONTRACT OF
SALE

Price – in terms All the essential

of money elements of a valid
contract
Transfer of general
property in goods

1. There must be two parties to a contract of sale- the buyer and the seller. ‘Buyer’ means a person
who buys or agrees to buy goods- Section 2(1). ‘Seller’ means a person who sells or agrees to sell
goods- Section 2(13). A person cannot be both a buyer and a seller.
Case: State of Gujarat vs. Ramanlal &Co.
In this case, a partnership firm was dissolved and the surplus assets of the firm were
divided among the partners. The Court held that there was no sale as the partners themselves were the
joint owners of the firm’s assets and they could not be both buyers and sellers.
2. Goods form the subject matter of contract of sale – Sale of Goods Act is not concerned with the
sale of immovable properties like land, building etc.
 3. The consideration for the contract of sale, i.e., The price must be paid in the form of money.
Exchange of goods for goods is not a sale. It is known as ‘barter’. The consideration may be partly in
money and partly in goods.
4. There must be a transfer of general property in goods from the seller to the buyer. In other
words, the seller must have absolute right to sell the goods.
Example: X, who owns certain goods, has general property in the goods. He has the right to sell.
But if he pledges them with Y, Y has special property in the goods.
5. All the essential elements of a valid contract must be present in the contract of sale, e.g., Offer,
Acceptance, Free consent, Capacity of parties to make contract and so on.
Goods
‘Goods’ form the subject matter of a contract of sale. Section 2(7) defines ‘Goods; as follows:
‘Every kind of movable property other than actionable claims and money, and includes stocks and
shares, growing crops, grass and things attached to or forming part of the land which are agreed to the
severed before sale or under the contract of sale’. Trademarks, copyrights, patents, goodwill,
electricity, water, gas are all goods.
Classification of Goods: Goods are classified under the Sale of Goods Act as follows:
1) Existing Goods
(a) Specific Goods
(b) Ascertained Goods
(c) Unascertained Goods

2) Future Goods
3) Contingent Goods
1) Existing Goods: These are the goods that are owned and possessed by the seller at the time of
sale. Existing Goods are further divided into specific, ascertained and unascertained goods.
(a) Specific goods are those which are identified and agreed upon at the time of contract of sale.

Example: A specific TV or a specific Wristwatch

(b) Ascertained Goods are those that are identified out of a mass of unascertained goods, agreed
upon and appropriated (set aside) for the purpose of the contract of sale.

Example: When 20kgs of sugar are appropriated from a bag containing a larger quantity of sugar,
the 20kgs become ascertained for the contract.
(c) Unascertained Goods are those which are not identified and agreed upon at the time of the
contract of sale. They are only defined by description.

Example: X wants to buy a cycle and goes to a shop selling bicycles. He is taken to the godown of
the shop where he sees hundreds of cycles. These are unascertained. X may select a particular
cycle which becomes specific. If the particular cycle selected by X is taken out and kept
separately, it becomes ascertained.
2) Future Goods: These are the goods which a seller does not posses at the time of the contract of
sale but which will be produced or acquired by him after entering into the contract of sale with the
buyer – Section 2(6).
Example: Mr. J approaches a Maruti dealer and books a new Maruti ‘Alto’ car. The dealer may
promise delivery of the car, say, within a month if immediate delivery is not possible.
3) Contingent Goods: These are the goods the acquisition of which by the seller depends upon a
contingency which may or may not happen – Section 6(2).
Example: The goods are contingent goods if they are to be delivered subject to the safe arrival of
the ship carrying the goods. If the ship arrives without the goods, the seller is not bound.
How is a Contract of Sale Made?
 A contract of sale is made by an offer to buy or sell goods for a price by a party and its
acceptance by another. It may be made in writing or by word of mouth. It may also be implied by the
conduct of the parties.
The contract of sale may provide for the immediate delivery of the goods or immediate
payment of the piece or both, or for the delivery or payment by installments or that the delivery or
payment or both shall be postponed (Section 5).

DISTINCTION NETWEEN SALE AND AGREEMENT TO SELL

The points of differences between Sale and Agreement to sell may be tabulated as follows:
SALE AGREEMENT TO SELL
1. The ownership rights are transferred to the 1. Here the ownership rights are transferred to
buyer immediately. the buyer only in future.
2. If the goods are destroyed, the loss will fall 2. If the goods are destroyed, the loss will fall
on the buyer even if the goods are in the on the seller even if the goods are in the possession
possession of the seller. of the buyer.
3. If the buyer fails to pay the price, the seller 3. In a similar case, the seller can only sue the
can sue him for the price. buyer for damages.
4. The seller cannot re-sell the goods (if he is 4. In case of re-sale by the seller, the second
keeping possession). If he does so, the second buyer gets a good title provided he buys in good
buyer does not get a good title. faith. The first buyer can sue only the seller for
damages.
5. It creates ‘jus in rem’ (right against the 5. It creates ‘jus in personam’ (right against a
world) i.e., right to enjoy the goods against whole person) i.e., right to the buyer to sue the seller for
world. damages.
6. If the buyer becomes insolvent before 6. If the buyer becomes insolvent before
paying the price, the seller can get only a rateablepaying the price, the seller is not bound to part
dividend from the buyer’s estate towards the price.with the goods.
7. If the seller becomes insolvent, the buyer 7. If the buyer has already pai the price and the
can recover the goods from the Official Receiver. seller has become insolvent, the former can claim
only a rateable dividend from the latter’s estate and
not the goods.

HIRE- PURCHASE
In a hire – purchase contract, goods are hired out to the hire- purchase or hirer. The hirer
usually makes an initial payment is called the ‘down payment’. He pays hire charges at regular
intervals. Each such payment comprises of a portion of the cash price of the article let on hire and
interest. These are called ‘Installment Payments’.
Once the hirer completes the payment of the fixed instalment charges, he becomes the owner of the
article. If at any time the hirer makes default in making the installments, the vendor may, after giving
due notice to the hirer, seize the article from him.
DISTINCTION BETWEEN HIRE-PURCHASE AND SALE
Hire- purchase Sale
1. The parties are called by the name ‘hire 1. The parties are called by the name ‘seller’
vendor’ and hirer’. and ‘buyer’.
2. Only possession is transferred to the hirer. 2. Both possession and title are transferred to
the buyer.
3. Property in goods (ownership) is transferred 3. Property in goods is transferred to the buyer
to the hirer only upon his paying all the installmentimmediately on signing the contract.
charges.
4. The hirer’s position is that of the bailee. He 4. The position of the buyer is that of the
has to take care of the goods hired out of him as owner.
a
man of ordinary prudence would take care of his
own goods of the same type
5. The hirer may terminate the contract by not 5. The buyer cannot terminate the contract of
paying the hire charges in future. In such a case,sale. If he does not pay the price, the seller can
the vendor may, after giving due notice to the take legal action against him.
hirer, seize the goods.
6. The hirer pays only hire- charges and it is 6. In case the buyer pays the price in
not seen as payment towards the price of the instalments, each such instalment payment will be
article. seen as payment towards the price of the article.

DISTINCTION BETWEEN BAILMENT AND SALE

Bailment Sale
1. In bailment, there is only transfer of 1. There is transfer of both possession and title
possession of goods. in respect of the goods sold.
2. The bailee has to take care of the goods 2. The buyer has no such responsibility.
bailed to him as a man of ordinary prudence would
take care of his goods of the same type.
3. The goods are to be returned to the bailor 3. The buyer does not return the goods in a
once the purpose of bailment has been fulfilled. sale.
4. It may be gratuitous. 4. Sale is never gratuitous.
Contract for Work and Materials
The Sale of Goods Act does not apply to a contract for work and materials. A contract for
work and materials involves the exercise of skill and labour by one party in respect of material
supplied by another. The delivery of goods is only incidental.
Example: A contract involving the repair of a car and the supply of parts for that purpose is a
contract for work and materials.
Case: Lee vs. Griffien In this case, the making of artificial teeth and its supply to a patient by a
dentist was held as the outcome of a contract for the sale of goods.
Document of title to goods: A document of title to goods is one which enables the person
possessing it to deal with the goods. It is used as a proof of the possession of goods. It authorizes such
a person to transfer or receive goods represented by it- Section 2 (4).
The following are some of the documents of title to goods used in business:
i. Railway receipt: It is a document issued by the Railway authorities acknowledging the
receipt of goods. It should be presented while taking delivery of goods.
ii. Warehouse keeper’s certificate: It is document issued by a warehouse keeper stating that
the goods specified in the document are lying in his warehouse.
iii. Bill of lading: It is document that acknowledges the receipt of goods on board a ship and is
signed by the captain of the ship.
iv. Dock warrant: It is document issued by a doc owner giving details of the goods and stating
that the goods are held to the order of the person named in it.
v. Delivery order: It is a document that contains an order by the owner of the goods to the
person holding the goods to deliver them to the person whose name is mentioned in the document.

Effect of Destruction of Goods

1. A contract for the sale of specific goods is void if at the time when the contract was made,
the goods have, without the knowledge of the seller, perished (Section 7).
 Example: X agrees to sell and deliver his bike to Y on a certain day. But unknown to both X and
Y, the bike was destroyed in a fire accident. The agreement is void.
2. An agreement to sell specific goods becomes void if subsequently, the goods, without any
fault on the part of the seller or buyer, perish or become damages (Section 8).

Section 7 and 8 apply only to specific goods and not to unascertained goods. In the case of
unascertained goods, the perishing of even the whole quantity of such goods in the possession of the
seller will not relieve him of his obligation to deliver the goods.
Price: Price is the money consideration for the sale of goods- Section 2(10). It must be expressed
in money terms.
Price in a contract of sale may be-
a) Fixed by the contract itself;
b) Left to be fixed in an agreed manner; or
c) Determined by the course of detailing between the parties – Section 9(1).

In the absence of the above, the buyer must pay the seller a reasonable price. What is a reasonable
price is a question of fact dependent on the circumstances of each particular case – Section 9 (2).
Earnest: It is intangible thing that given by the buyer as a token of goods faith and as a guarantee
for the due performance of the contract. If the contract is duly performed, the earnest is returned.
If the earnest is in the form of money, it is adjusted against the purchase price. If the contract is not
performed due to the default of the buyer, he has to forfeit the earnest.

CONDITIONS AND WARRANTIES

In the course of making a contract with the buyer, the seller may make certain statements with
reference to the goods to induce the buyer. Any such statement or stipulation may be mere expression
of opinion by the seller or may form part of the contract itself.
A stipulation in a contract of sale with reference to goods, which are the subject- matter thereof,
may be a condition or a warranty – Section 12 (1).
Definition of Condition and Warranty – Section 12 (2) & (3)
A ‘condition’ is a stipulation that is essential to the main purpose of the contract. If there is
a breach of condition the affected party can treat the contract as repudiated. (Repudiate – disown or
reject)
A ‘warrant’ is a stipulation that is collateral to the main purpose of the contract. If there is a
breach of warranty the affected party can only claim damages only and has no right to reject the
contract.
DISTINCTION BETWEEN CONDITION AND WARRANTY
Condition Warranty
1. A ‘condition’ is a stipulation that is essential 1. A ‘warrant’ is a stipulation that is collateral
to the main purpose of the contract to the main purpose of the contract.
2. For the breach of condition, the affected 2. For the breach of warranty, the affected
party can abdondon the contract of sale. party can claim damages only.
3. A breach of condition may be treated as a 3. A breach of warranty cannot be in any way
breach of warranty. This happens if the affected treated as breach of condition.
party decides to claim damages only.

Whether stipulation in a contract of sale is a condition or a warranty depends in each case on the
construction of the contract. A stipulation may be a condition though called a warranty in the contract
– Section 12(4).
When is a Condition treated as a Warranty? (Section 13)
Under the following circumstances, a condition is treated as a warranty:
 a) When the buyer waives the condition, i.e., avoids insisting on the condition; or
b) When he elects to treat the breach of condition as a breach of warranty; or
c) Where a contract of sale is severable and the buyer has accepted the goods or part thereof,
the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty.

There can be any number of express conditions and warranties in a contract of sale. The implied
conditions and warranties are contained in the Sale of Goods Act and those are given below:
Implied Conditions in a Contract of Sale: The following are the implied conditions in a contract
of sale:
1) Conditions as to Title [Section 14(a)]
2) Sale by Description [Section 15]
3) Condition As to Quality or Fitness [ Section 16(1)]
4) Conditions As to Merchantable Quality [Section 16(2)]
5) Conditions Implied by Custom [Section 16(3)]
6) Sale by Sample [Section 17]
7) Condition As to Wholesomeness

1) Conditions as to Title [Section 14(a)]: In a contract of sale there is an implied condition that in
the case of a sale, the seller has a right to sell the goods and in the case of an agreement to sell, he will
have a right to sell the goods at the time when the property is to pass.
Case: Rowland vs. Divail In this case, R bought a car from D and latter came to know that D had
no title to the car. The Court held that R could recover the price paid.
2) Sale by Description [Section 15]: When goods are sold by description there is an implied
condition that the goods shall correspond with the description. Otherwise, the buyer is not bound to
accept the same.
Sale of goods by description covers the following situations:
a) The buyer has not seen the goods and relies on the seller’s description

Case: Warley vs. Whipp In this case, a machine was sold describing it to be one year old but the
buyer found it to be extremely old and did not perform as described. It was held that he could reject it
as it did not correspond with the description.
b) The buyer has seen the goods but buys only on the basis of the seller’s description.

Case: Beale vs. Taylor A car, in this case, was described as a 1961 model. The buyer saw the car
before buying it. Latter, he found that the rear part of the car was part of a 1961 model but the front
part was part of an earlier model. It was held that he could return the car.
c) Packing of goods is part of the description

Case: Moore&Co. vs. Landauer&Co. The seller of certain fruits, in this case, made it clear to the
buyer that each case would contain fruits packed in 30 tins. Upon delivery the buyer found only 24 tins
in each case. It was held that the buyer could reject.
3) Condition As to Quality or Fitness [Section 16(1)]: Generally, in a contract of sale there is no
implied condition as to quality or fitness of the goods for a particular purpose. The buyer must
examine the goods thoroughly before he buys them and satisfy himself that the goods will be suitable
for the purpose for which he is buying them.
The following points, however, must be noted:
(a) If the buyer makes known to the seller the particular purpose for which he needs the goods and
depends upon the skill and judgment of the seller, there is an implied condition that the goods shall be
reasonably fit for the purpose.
 Example: X asks for rechargeable batteries for his digital camera. The seller gives him ‘use and
throw’ batteries. There is a breach of condition as to quality or fitness. X can return the batteries and
claim refund.
(b) If the buyer buying an article for a particular purpose is suffering from any abnormality and it
is not made known to the seller at the time of sale, implied condition of fitness does not apply.
Example: P, who is a diabetic, purchases a cough syrup that is not recommended for people who
have diabetic conditions. But he does not reveal his problem to the pharmacist. His diabetic condition
aggravates after he consumes the cough medicine. There is no breach of condition as to fitness on the
part of the seller.
(c) If the buyer buys an article under its patent or other trade name, the implied condition that the
article is fit for a particular purpose shall not apply, unless the buyer relies on the seller’s skill and
judgment.
Example: F is a dealer in fitness equipment. B purchases equipment, meant for reducing weight,
from F but finds that he is not able to reduce his weight even after several weeks of use. B cannot hold
F liable.
(d) In case the goods can be used for a number of purposes, the buyer must tell the seller the
particular purpose for which he requires the goods. If he does not, he cannot hold the seller liable if the
goods are not suited to his need.
Example: S buys 15 meters of cotton cloth thinking that it would suitable for making window
curtains. He does not tell the seller the purpose for which he is buying the cloth material. Later, he
finds the material unsuitable for making window curtains. He cannot be holding the seller liable.
4) Condition As too Merchantable Quality [Section 16(2)]: Where goods are bought by
description form a seller who deals in goods of that description, there is an implied condition that the
goods are of merchantable quality. Goods are of merchantable quality if they are fit for the very
purpose for which they are usually purchased.
Example: A pen that does not write or a watch that does not show time cannot be considered to be
merchantable.
5) Condition Implied by Custom [Section 16(3)]: In some cases, the purpose for which the
goods are required may be ascertained from the acts and conduct of the parties to the sale or from the
nature of description of the article purchased. In such a case the buyer need not tell the seller the
purpose for which he buys the goods.
Case: Grant vs. Australian Knitting Mills Ltd. M was a dealer in woolen dresses from M. After
wearing it, he developed an acute skin disease. It was held that G could avoid the contract and claim
damages.
6) Sale by Sample [Section 17]: In the case of a contract for sale by sample, there is an implied
condition that the bulk shall correspond with the sample in quality and the buyer shall have a
reasonable opportunity of comparing the bulk with the sample. The goods shall also be free from any
defect, rendering them unmerchantable. The defect should not, however, be apparent on a reasonable
examination of the sample.
7) Condition As to Wholesomeness: In the case of eatables and provisions, in addition to the
implied condition as to merchantability, there is another implied condition that the goods shall be
wholesome- goods for health.
Case: Frost vs. Aylesbury Dairy Co. Ltd. Milk purchased by F from A contained typhoid germs.
F’s wife who consumed the milk got infected and as a result she died. It was held that F could recover
damages.
Implied Warranties: The implied warranties in a contract of sale are shown below:
1) Quiet Possession
2) Free from Encumbrances
3) To disclose dangerous Nature of Goods
 1) Quiet Possession [Section 14(b)]: In a contract of sale, unless there is a contrary intention,
there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the
buyer’s enjoyment of the goods is in any way disturbed in consequence of the seller’s defective title to
sell, the former can claim damages.
2. Freedom from encumbrances [Section 14(c)]: In addition to what is given in Section 14(b)
above, the buyer is entitled to a further warranty that the goods are not subject to any charge or right in
favour of a third party. If the buyer’s possession is in way disturbed by reason of the existence of any
charge or encumbrance on the goods in favour of any third party, the buyer can claim damages.
3. To disclose dangerous nature of goods: If the goods sold are of a dangerous nature, it is the
duty of the seller to caution the buyer about the same. Otherwise the seller will be liable for damages if
the buyer is injured.
Caveat Emperor: It is the Latin rule what means ‘Let the Buyer Beware’. In a contract of sale, it
is not necessary for the seller to give all the details in respect of the goods he sells.
It is the duty of the buyer to examine the goods he buys thoroughly before making the decision to
buy. If he makes a bad section, he cannot blame the seller.
Example: X, thinking that he is buying ‘boiled’ rice, buys 5kgs of ‘raw’ rice. He cannot avoid the
contract.

RIGHTS OF AN UNPAID SELLER

An unpaid seller is one to whom-
(a) The whole of the price has not been paid; or
(b) A Bill of Exchange or such other negotiable instrument has been given but the same has
been dishonoured [Section 45(1)]

The various rights of an unpaid seller have been indicated in the following chart:

UNPAID SELLER’S RIGHT

Right against the Buyer Personally (Rights in

Rights against the Goods (Rights in Rem, i.e., Personal, i.e., Against a Particular person)
against the whole world

Suit for Price

Where the property in the Where the property in the Suit for Damages
goods has passed goods has not passed Repudiation of Contract
Suit for Interest

Right of Lien
Right of Lien Right of stoppage in
Right of stoppage Transit
in Transit Right withholding
Right of Re-sale Delivery
 I) Rights of an unpaid seller against the goods: These rights of the unpaid seller are known as
‘rights in rem’. If the property in the goods has already been passed on to the buyer, the unpaid seller
has the following rights against the goods:
Right of Lien [Section 46(1)(a), 47 and 48]: The right of lien is the right to retain possession of
the goods until payment for the same is made. Such a right is available to the unpaid seller having
possession of the goods if the goods have been sold on credit, but the term of credit has expired. Such
a right is also available in case the buyer has become insolvent.
Rules regarding lien:
(a) Possession of goods is important to exercise the right of lien.
(b) The right of lien is not affected even if the seller has partner with the document of title to
the goods.
(c) The possession of the goods by the seller must not expressly exclude the right of lien.
(d) The lien can be exercised by the unpaid seller only for the price due and not for any other
charges like warehouse rent or carriage expenses.
(e) If the unpaid seller has already made part delivery of the goods to the buyer, he may
exercise lien on the remainder.

TERMINATION OF LIEN (Section 49)

The unpaid seller loses his right of lien on the goods in the following circumstances:
(a) If he delivers the goods to a carrier or other bailee for the purpose of transmission o the
buyer without reserving the right of disposal of the goods.
(b) If the buyer or his agent lawfully obtains possession of the goods.

Rights of stoppage in transit [Section 46(1) (b), 50, 51 and 52]

It is a right of stopping the goods while in transit after the unpaid seller has lost possession of the
goods. This right enables the seller to retain possession. Such a right is available to the unpaid seller-
(a) When the buyer becomes insolvent; and
(b) When the goods are in transit.

Goods are deemed to be in course of transit if they are delivered to a carrier or other bailee for the
purpose of transmission to the buyer, until the buyer or his agent takes delivery of them.
How stoppage in Transit if Effected?
The unpaid seller may exercise his right of stoppage in transit-
(a) By taking actual possession of the goods; or
(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods
are.

Distinction between right of lien and right of stoppage in transit

The right of lien of the unpaid seller may be differentiated form his right of stoppage in transit as
shown below:
Right of Lien Right of Stoppage in Transit
1. The unpaid seller can exercise this right only 1. The unpaid seller can exercise this right if he
if he keeps possession of the goods. has lost possession of the goods.
2. The right can be exercised when the buyer is 2. This right is exercised only when the buyer
able to pay but does not pay. is insolvent.
3. This right comes to an end the moment 3. This right commences only when the seller
possession of the goods is lost by the unpaid seller.has lost possession of the goods.
 4. It is a right to retain possession. 4. It is a right to regain possession.

Right of Re-sale [Section 46(1) (c) and 54]

The unpaid seller can re-sell the goods-
(a) If the goods are of a perishable nature; or
(b) If he given notice to the buyer of his intention to re-sell and the buyer has not within a
reasonable time paid the price.

If on resale, the seller incurs loss, he can claim the same from the buyer as damages for breach of
contract. If there is a profit on resale, he is not bound to hand it over to the buyer.
Right of Withholding Delivery [Section 46(2)]
If the property in the goods has not passed to the buyer, the unpaid seller has, in addition to all
other remedies, the right to withhold delivery.
II) Right of an unpaid seller against the buyer personally
These rights of the unpaid seller against the buyer are called ‘rights in personam’. These are
follows:
1. Suit for price (Section 55): If the buyer wrongfully refuses to pay for the goods, the seller may
sue him for the price whether the property in the goods has passed to the buyer or not.
2. Suit for Damages for Non Acceptance (Section 56): If the buyer wrongfully refuses to accept
and pay for the goods, the seller may sue him for damages for non-acceptance.
3. In case of Repudiation of Contract (Section 60): If the buyer abandons the contract before the
date of delivery the seller may treat the contract as existing and wait till the date of delivery or he
may treat the contract as cancelled and sue the buyer for damages for the breach.
4. Suit for Interest (Section 61(2)(a)): If there is specific agreement between the seller and the
buyer as to interest on the price of the goods from the date on which payment becomes due, the
seller may recover interest from the buyer. If there is no such agreement, the seller may charge
interest from the buyer. If there is no such agreement, the seller may charge interest on the price
when it becomes due from such day as he may notify to the buyer.

Auction Sale: It is a public sale in which different willing buyers participate. The goods are finally
sold to the highest bidder, i.e., the one who has quoted the highest price.
Rules regarding Auction Sale (Section 64): The rules in respect of auction sale, contained in the
Sale of Goods Act, are given below:
1. If the goods are put up for sale in an auction in lots, each lot is deemed to be a subject of a
separate contract of sale.
2. The sale is completed when the auctioneer announces its completion by the fall of the hammer
or in some other customary manner. Until such announcement any bidder may revoke his bid.
3. A right to sell is not notified to be subject to a right to bid on behalf of the seller, it is not lawful
for the seller to bid himself ot to employ any person to bid at such a sale.
4. A right to sell may be reserved expressly by he seller. In such a case, the seller or any one
person on his behalf may bid at the auction.
5. The sale may be notified to be subject to a ‘reserve’ or ‘upset’ price. It is a price below which
the auctioneer will not sell.
6. If the seller makes use of pretended biding to raise the price, the sale id voidable at the option of
the buyer (he may avoid it)
 Sometimes, a group may form a combination to prevent competition among themselves in an
auction. Only one of them may actually bid and they may share the benefits later previously. Such a
combination is called a ‘knock out’ and is not illegal. But if the intention of the parties is to defraud a
third party, the knock out is illegal.

TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS

Passing of Property of Goods: ‘Property in goods’ refers to the ‘ownership’ of goods. A person’s
ownership right in respect of certain goods does no to depend upon ‘possession’. Possession is mere
custody or control of goods. It does not determine or decide ownership. Thus, certain goods possessed
by X may not actually belong to him. On the other hand, X may be the owner of a thing that he does
not possess right now.
Ownership of goods or property in goods is also referred to as ‘title to goods’.

Title to Goods Ownership of

Property in Goods Goods

Need for knowing the Time of Passing of Property in Goods: It is important to know the time of
passing of property in goods from the seller to the buyer in view of the following reasons:
(a) Owner to bear the risk of loss- It is only the owner who has to bear the risk of loss of goods
arising from theft, fire accident etc. and not the person who has possession of the goods.
(b) Action against a third party- If a third party causes damage to the goods, it is only the owner
who can take action against such a person.
(c) Seller’s Insolvency- In the event of insolvency of the seller, the Official Receiver can take
possession of the goods from the buyer only if the ownership has not been transferred to the buyer.
(d) Buyer’s Insolvency- In case the buyer becomes insolvent; the Official Receiver can take
possession of the goods from the seller only if the ownership has been transferred to the buyer.
(e) Suit for the Price- The seller can sue the buyer for the price, only if the goods have become the
property of the buyer.

Rules regarding passing or property in specific goods: The rules in respect of transfer of
property in specific goods are as follows:
1.When there is a contract for the sale of specific or ascertained goods, the property in such goods
passes to the buyer at the time the parties intend it to pass. The terms of the contract and the
circumstances of the case will indicate the intention of the parties (Section 19).
2. When there is an unconditional contract for the sale of specific goods in a deliverable state, the
property in the goods passes to the buyer when the contract is made. The fact that the time of
payment of the price or the time of delivery of goods has been postponed does not prevent the
property in goods to pass to the buyer (Section 20)

‘Deliverable state’ means that the goods are in such a condition that the buyer would be able to
take immediate delivery.
Example: X buys books for Rs.1,000. He pays Rs. 200 and carries with him some books and
agrees to take delivery of the remaining books and also pay the balance amount due the same evening.
A fire accident occurs at the bookshop in the afternoon and everything in the shop is reduced to ashes.
X is liable to pay the balance.
 1. When there is a contract for the sale of specific goods not in a deliverable state, the property
therein does not pass until the goods are put into a deliverable state (Section 21)
2. When there is a contract for the sale of specific goods in a deliverable state and seller has to
weigh or measure the goods to determine the price, the property in such goods does not pass until
the price is determined (Section 22)

Unascertained Goods: The rules in respect of transfer of property in unascertained goods are as
follows:
1. When there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained (Section 18).

Example: Weighting 20kgs of a certain grade of rice from a bag containing 100kgs is an act of
ascertainment.
2. When there is a contract for the sale of unascertained or future goods by description and the
goods of that description are in a ‘deliverable state’ and are ‘unconditionally appropriated’ to the
contract, the property in the goods thereupon passes to the buyer- Section- 23(1).

Goods sent on approval (Sale or Return): In certain type of trade, the seller may allow the buyer
to take delivery of a certain product, use it for a particular period of time and if he is satisfied with its
performance or utility, he can pay for it. Otherwise, the buyer can return it. Such a transaction is called
a ‘sale or return’ transaction.
Example: Marketers of fitness equipment often come out with a sale or return offer.
Section 24 deals with Goods sent on Approval
When goods are delivered to a person on approval, the property therein passes to him under any of
the following circumstances:
(a) When he conveys his approval to the seller
(b) When he does any other act adopting the transaction
(c) When he retains the goods

Sale by Non- Owners: The general rule is that ‘No one can give that which one has not got’ (the
Latin version of the rule is ‘Nemo Dat Quod Non Habet’).
A person who is not the owner of certain goods has no legal right to sell the same.
According to Section 27, “Where goods are sold by a person who is not the owner thereof and who
does not sell from under the authority or with the consent of the owner, the buye acquires no better
title to the goods than will the seller had.
This rule, however, has certain exceptions. These exceptions have come to be more important than
the rule itself. These are discussed below:
Nemo Dat Quod Non Habet- Exceptions
1.Sale by Estoppel (Section 27)- If the owner, by his behavior, conduct or by an act of omission,
leads the buyer to believe that the seller has the authority to sell and induces the buyer to buy the
goods, the buyer gets a good title.

Example: X tells Y in the presence of Z that he (X) is the owner of a certain imported wristwatch.
The watch actually belongs to Z. Z does not refute X’s statement. Later, Y buys the watch from X. Z
cannot dispute Y’s title of the watch.
2. Sale by a Mercantile Agent- A buyer of goods from a mercantile agent gets good title to the
goods provided the buyer acts in good faith. Such an agent usually does not take title to the goods
he sells.
 3. Sale by one of several joint owners (Section 28)- If one of the several joint owners (who is
keeping possession of the goods) sells and the buyer acts in good faith, the latter gets a good title.

Example: A, B and C jointly own certain furniture. A sells it to D who acts in good faith. D gets a
valid title to the furniture.
4. Sale by a person in possession under a voidable contract(Section 29)- If a person acquires
certain goods by fraud or coercion and sells the same, before the affected party avoids the voidable
contract, the buyer gets a good title provided he acts in good faith.

Example: X obtains Y’s gold ring by fraud and sells it to Z before Y avoids the contract. Z buys it
in good faith, i.e., without knowledge of X’s defective title. Z gets a valid title to the ring.
5. Sale by a seller in possession of the goods after sale [Section 30(1)]- A seller who, after having
sold certain goods, is still keeping possession of the same and sells and delivers it to another
person, such a person gets a good title provided he acts in good faith. The first buyer can only take
legal action against the seller.

Example: P sells certain goods to Q and agrees to deliver the same the next day. Before delivery,
P sells and delivers the goods to R who buys them in good faith. R gets a good title. Q can take legal
action only against P.
6. Sale by a buyer in possession before transfer of ownership [Section 30(2)]- A buyer who, after
having agreed to buy certain goods, is keeping possession of the same, sells it to another person,
such a person gets a goods title provided he acts in good faith.
7. Sale by an unpaid seller [Section 54(3)]: If an unpaid seller, who has exercised his right of lien
or stoppage in transit, re-sells the goods, the buyer gets a good title as against the original buyer.
8. Sale by a finder of goods [Section 169 of The Indian Contract Act, 1872]- A finder of lost goods
can sell the goods he found under certain circumstances.
9. Sale by a pawnee [Section 176 of the Indian Contract Act, 1872]- A pawnee can sell under
certain circumstances.
10. Sale by Official Receiver or Assignee or Liquidator of a company- The buyer of goods from
any of these persons gets a valid title.

Performance of Contract of Sale:

A contract of sale is said to be performed when the seller gives delivery of the goods to the buyer
and the buyer makes payment for the goods.
Delivery of goods: ‘Delivery’ means voluntary transfer of possession of goods from one person to
another (Section 2(2). Delivery of goods may be of 3 types as shown below:
1) Actual Delivery: It takes place when the seller or his agent physically hands over the goods to
the buyer
2) Symbolic Delivery: Actual delivery may not always be possible particularly when the goods are
of a bulky nature. Handing over of the warehouse key to the buyer is symbolic delivery of goods.
3) Constructive Delivery: Where a third person, may be a bailee, who is in possession of the goods
of the seller at the time of the sale acknowledges to the buyer that he holds the goods on his behalf,
there takes place constructive delivery.
Example: X sells to Y 20 bags of rice lying in Z’s godown. Z delivers the goods to Y as per X’s
advice. This is what is known as constructive delivery.
Rules regarding delivery of Goods: The rules, contained in The Sale of Goods Act, in respect of
delivery of goods are explained below:
 1. Payment of Price After Delivery [Section 32]: Delivery of the goods and payment of the price
must be in accordance with the terms of the contract. Unless otherwise agreed, delivery of the goods
and payment of the price are concurrent conditions. The seller shall be ready and willing to give
possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing
to pay the price in exchange for the possession of the goods.
2. Mode of Delivery (Section 33): The mode of delivery may be actual, symbolic or consecutive.
3. Effect of Part Delivery (Section 34): A delivery of part of the goods in the process of delivery of
the whole has the same effect, for the purpose of passing the property in such goods, as delivery of the
whole. But a delivery of the goods, with an intention of serving it from the whole, does not operate as
delivery of the reminder.
Example: X sells 500kgs of potatoes to Y. Y gets 300kgs measured and takes delivery and agrees
to collect the remainder after two days. Here, the delivery of 300kgs of potatoes has the same effect,
for the purpose of passing of property to the buyer, as delivery of 500kgs.
4. Buyer to apply for Delivery (Section 35): The seller is not bound to deliver the goods until the
buyer applies for delivery. Where the goods are subsequently acquired by the seller, he should inform
the buyer about it and the buyer should then apply for delivery.
5. Place of Delivery [Section 36(1]): If the contract itself specifies the place where the goods shall
be delivered, the goods shall be accordingly delivered by the seller at that place during business hours
on a working day. If the contract is silent about the place of delivery, the goods shall be delivered at
the place at which they are at the time of sale.
6. Goods in Possession of a Third Party [Section 36(3)]: When at the time of the sale the goods
are with a third party, there is no delivery by the seller to the buyer until such third party
acknowledges to the buyer that he holds them on his behalf. But if the goods have been sold by the
issue or transfer of any document of title to goods like warehouse receipt, railway receipt etc., the third
party’s consent is not required.
7. Time of Delivery [Section 36(4)]: If the contract is silent about the time of delivery of the goods,
the goods shall be delivered by the seller to the buyer within a reasonable time.
8. Cost of Delivery [Section 36(6)]: Unless otherwise agreed, all expenses of delivery and also
incidental expenses are to be borne by the seller. All expenses of obtaining delivery and also incidental
expenses are to be borne by the buyer.
9. Delivery of Wrong Quantity [Section 37]: The quantity of goods delivered by the seller should
be strictly in accordance with the terms of the contract. Otherwise the buyer is entitled to reject the
goods.
(a) If the quantity of goods delivered by the seller to the buyer is less than that contracted for- In
such a case, the buyer may reject the goods. If he accepts them, he shall pay for them at the
contract rate. If the goods have been rejected for short delivery, the seller can make, within the
time limit, another delivery in accordance with the twems of the contract.

Example: X delivers 75 bags of cement at Y’S work site against 125 bags contracted for. Y may
reject the goods or accept and pay at the contract rate.
(b) If the quantity of goods delivered by the seller to the buyer is more than that contracted for- In
such a case, the buyer may accept the whole or reject the whole or reject only the excess quantity.
If he decides to accept the whole, he must pay for them at the contract rate.

Example: In the above case, suppose X delivers 150 bags of cement against 125 bags contracted
for, Y can accept the whole and pay at the contract rate or reject the whole or rreject only the excess
quantity, i.e., 25 bags.
 (c) If the seller delivers the goods he contracted to sell mixed with goods of a different description-
In such a case, the buyer may accept the goods which are in accordance with the contract and
reject the rest or may reject the whole.

Example: P contracts with Q to supply 100 litres of refined oil but delivers 80 litres of refined oil
and 20 litres of Coconut Oil or reject everything delivered.
10. No instalment Delivery of Goods [Section 38 ]: Unless otherwise agreed, the seller is not
entitled to deliver the goods by instalments and if he does so, the buyer is not bound to accept the
goods.
11. Delivery of Goods to a Carrier [Section 39]: Where the goods are delivered to a carrier, as per
the contract, for the purpose of transmission to the buyer, it shall be deemed to be a delivery of the
goods to the buyer. If the goods are sent by sea route, the seller must inform the buyer in time to get
the goods insured. Otherwise the goods will be at the seller’s risk during such transit.
Rights of the buyer: The rights of the buyer, in a contract of sale are as follows:
1. The buyer has the right to have delivery of the goods as per the contract (Section 31 and Section
32)
2. If the seller does not send, as per the contract, the right quantity of goods to the buyer, the buyer
can reject the goods (Section 37)
3. The buyer has a right not to accept delivery of the goods by the seller in instalments (Section 38)
4. If the goods are sent by sea route by the seller, the buyer has a right to be informed by the seller
so that he may get the goods insured (Section 39)
5. The buyer has a right to examine the goods which he has not seen earlier before giving his
acceptance for the same (Section 41)
6. Rights against the seller for breach of contract:
a. To claim damages- If the seller wrongfully refuses to deliver the goods to the
buyer as per the contract, the buyer may sue the seller for damages for non- delivery. The amount
will be the differecnes between the contract price and the market price of the goods (Section 37)

Example: X contracts with Y to sell 100kgs of [email protected] per kg. On the due date, X fails to
deliver and the market price of apple on that day is Rs. 50 a kg. Y can recover damages @ Rs. 10 per
kg.
b. To recover the price paid- If the buyer has already paid the price and the seller
has not delivered the goods as per the contract, the buyer can recover the amount paid.
c. To sue for Specific Performance: If the contract is for the sale of specific or
ascertained goods, the buyer may sue the seller for the specific performance of the contract in case
of breach of contract by the latter (Section58)
d.To sue for breach of Warranty (Section 59)- The buyer may sue the seller for
damages for the breach of any implied warranty as per the provisions of this Act.
e. To sue for damages in case of Repudiation of contract before due date (Section
60)- If the seller repudiates (rejects) the contract before the date of delivery, the buyer may either
treat the contract as still existing and wait till the date of delivery or he may treat the contract as
cancelled and sue the seller for damages for the breach. The second case is known as the
‘anticipatory breach’ of contract.

f. To sue for interest [ Section 61(2) (b)]- If in view of the breach of contract by the
seller, the price has to be refunded to the buyer, the buyer has a right to claim interest on the
amount.
Duties of the Buyer: The following are the duties of the buyer:
1) It is the duty of the buyer to accept the goods and pay for them in accordance with the terms of
the contract (Section 31 and 32).
2) It is the duty of the buyer to apply for delivery (Section 35).
3) It is the duty of the buyer to demand delivery of the goods within a reasonable time- Section
36(4).
4) If the contract specifically provides for the delivery of the goods by the seller by instalments,
the buyer shall such a delivery- Section 38(2).
5) It is the duty to take the risk of deterioration in the goods that is necessarily incident to the
course of transit – (Section 40) Example: Rusting of iron.
6) If the buyer refuses to accept the goods, it is his duty to inform the seller about it (Section 43).
7) If the seller delivers the goods as per the contract, it becomes the duty of the buyer to take
delivery of the same within a reasonable time. He remains liable to the seller for any loss arising
on account of his refusal to take delivery (Section 44).
8) If the seller has already passed on the ownership rights to the buyer, the latter has the duty to
pay the price as per the terms of the contract (Section 55).
9) If the buyer wrongfully refuses to accept and pay for the goods, he will have to compensate the
seller for damages for non- acceptance (Section 56).