The Indian Contract Act-1872 The Indian Contract Act, 1872 lays down the law relating to contracts.

It does not lay down a number of enforceable rights and duties, but lays down a number of limiting principles subject to which the parties may create rights and duties for themselves. Definition: Contract: Sec. 2 (h) An agreement enforceable by law is a contract. To make a contract, there must be (I) an agreement and (ii) the agreement should be enforceable by law. Agreement: Agreement is defined as every promise and every set of promises forming consideration for each other . A promise is defined as an accepted proposal. Thus, every agreement in its ultimate analysis is made of a proposal from one side and its acceptance by the other. To become a contract an agreement must be enforceable by law. Sec. 10 of the Act lays down the condition of enforceability. An agreement becomes enforceable only when it is coupled with obligation. An obligation is the legal bond, which binds the parties to a contract. The obligations springing from agreements should be legal obligations and not moral, social or religious obligations. Essentials of a Valid Contract : All contracts are agreements but all agreements need not be contracts. The agreements that create legal obligations only are contracts. The validity of an enforceable agreement depends upon whether the agreement satisfies the essential requirements laid down in the Act. Section 10 lays down that all the agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful object and are not hereby expressly declared to be void. The following are the essentials: a) Agreement : An agreement which is preliminary to every contract is the outcome of offer and acceptance. An offer to do or not to do a particular act is made by one party and is accepted by the other to whom the offer is made. Then we say that there is a meeting of the minds of the parties. Such a position is known as consensus ad idem. b) Free consent : The parties should agree upon the same thing in the same sense and their consent should be free from all sorts of pressure. In other words it should not be caused by coercion, undue influence, misrepresentation, fraud or mistake. c) Contractual capacity: The parties entering into an agreement must have legal competence. In other words, they must have attained the age of majority, should be of

sound mind and should not be disqualified under the law of the land. A contract entered into between the parties having no legal capacity is nullity in the eyes of law. d) Lawful consideration: There must be consideration supporting every contract. Consideration means something in return for something. It is the price for the promise. An agreement not supported by consideration becomes a nudum pactum i.e., naked agreement. The consideration should be lawful and adequate. However, there are certain exceptions to this rule. e) Lawful object : The object or purpose of an agreement must be lawful. It should not be forbidden by law, should not be fraudulent, should not cause injury to the person or property of another, should not be immoral or against public policy. f) Not expressly declared void: The statute should not declare an agreement void. The Act itself has declared certain types of agreements as void. E.g., agreements in restraint of marriage, trade, legal proceedings. In such cases, the aggrieved party cant seek any relief from the court of law. g) Possibility of performance: The agreement should be capable of being performed. e.g., Mr. A agrees with Mr. B to discover treasure by magic. Mr. B cant seek redressal of the grievance if Mr. A fails to perform the promise. h) Certainty of terms: The terms of the agreement should be certain. E.g., Mr. A. agrees to sell 100 tons of oil. The agreement is vague as it does not mention the types of oil agreed to be sold. i) Intention to create legal obligation: Though Sec. 10 is silent about this, under English law this happens to be an important ingredient. Therefore, Indian courts also recognise this ingredient. An agreement creating social obligation cant be enforced. j) Legal formalities: Indian Contract Act deals with a simple contract supported by consideration. Agreements made in India may be oral or written. However, Sec. 10 states that where the statute states that the contract should be in writing and should be witnessed or should be registered, the same must be observed. Otherwise, the agreement cant be enforced e.g., Under Indian Companies Act, the Memorandum of Association and Articles of Association must be registered.

Classes of Contracts: On the basis of enforceability, contracts may be classified as follows:

Valid contract: It is a contract which satisfies all the legal requirements provided for under Sec. 10. Void contract: An agreement not enforceable by law is said to be void. Sec. 2 (g). A void agreement is a nullity in the eyes of law creating no legal rights or obligations. Therefore, it is inappropriate to call it void contract. However, sometimes it may happen that an agreement which is valid in the beginning may become void subsequently due to various reasons, such as impossibility of performance or illegality. Then we do refer to the term void contract. An agreement void from the beginning is known as Void ab initio. Then we cant use the term void contract. E.g., an agreement with a minor. An agreement which ceases to enforceable by law becomes void when it ceases to be enforceable. Such a contract, though valid in the beginning becomes void subsequently. Voidable contract: 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. The party entitled to affirm or reject it is the aggrieved party. This right of revocation has to be exercised within the reasonable time and before third parties acquire rights under contract. When the aggrieved party avoids the contract, the other party there to need not perform any promise and the party avoiding the contract should restore any benefit he has received under the contract. Illegal contract: There is nothing like a legal contract or an illegal contract. It is right to call illegal agreement. An agreement is illegal when it is against the law of the land. E.g., an agreement to commit fraud, crime or one that is opposed to good morals. It is to be noted that while all the illegal agreements are void, all void agreements need not be illegal. Unenforceable contract: An unenforceable contract is one which is valid but for certain technical reasons such as want of proof, expiry of period within which enforceable, absence of writing or registration etc. it becomes unenforceable. By clearing the technical reasons it can be enforced.

Offer or Proposal Sec. 2 (a) defines offer as follows: When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other person to such act or abstinence, he is said to make a proposal. The person making the proposal is called promisor and the person accepting it is called promisee. Essentials of a Valid Offer:

a) An offer may be general or specific: According to Sec. 2 (a) an offer must be made to a specific person. An offer may be made to the world at large. But the contract is made only with the person who accepts and fulfills the conditions of the proposal. In the words of Anson, An offer need not be made to an ascertained person, but no contract can arise until it has been accepted by an ascertained person. In Carlill Vs Carbolic Smoke Ball Co. (1893), a Company offered by advertisement to pay 100 to any one who contacts the increasing epidemic influenza, cold or any disease caused by taking cold after having used the ball as per printed directions. It was added that 1000 is deposited with the Alliance Bank showing our sincerity in the matter. The plaintiff used the smoke mokeball as per the directions but subsequently suffered from influenza. She was held entitled to recover the promised reward. b) An offer should be made with an intention of creating legal obligation: This principle of English law though not incorporated specifically under Section 10, is generally accepted as vital to form a legal agreement. Social, moral or religious agreements are not legally enforceable. For example, Mr. A invites Mr. B to dinner. Mr. B fails to attend. Mr. A cannot sue Mr. B for unconsumed food. Whether the offeror intended to enter into legal obligations or not could be known from the nature of the agreement and the surrounding circumstances. The court has to ascertain the intention of the parties. The test of contractual intention is objective and not subjective. What is considered is not what the parties had in mind but what a reasonable person would think in the circumstances their intentions to be. c ) An offer must be definite and certain: The terms of an offer should not be uncertain and ambiguous. Anson expressed The law requires the parties to make their own contract, it will not make a contract for them out of terms which are indefinite or illusory . This is so because the courts cannot say what the parties to the contract are to do and whether there is violation of the contract. However, all the terms of an offer need not be expressed. If some of the essential terms of a bargain may not be specified but are capable of being determined by some method other than by a future agreement there will be a good contract between the parties. d) A statement of intention and an invitation to offer are not offers: Preliminary negotiations are likely to take place before entering into an agreement. In the course of such negotiations one party may make some declarations regarding his intention of doing something. Such a declaration by itself does not become an offer. e.g., A tells B I want to sell my car. This is not an offer. An invitation to offer is not an offer. An advertisement for tenders for sale of goods by auction, an announcement about the stock of goods for sale, display of goods in shop

windows, prospectus of a company, catalogue, price-lists, loudspeaker announcements etc. are merely invitations to offer or offers. E )An offer must be communicated to the offeree: An offer becomes operative only when it has been communicated to the person to whom the offer is made. Communication is necessary whether the offer is specific or general. Under Section 4 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made . However, mere knowledge of a proposal does not amount to communication unless the offeree acquires it with express or implied intention of the offeror. The Act does not indicate the mode of communication. The offeror may communicate the offer by choosing any available means. However, a letter containing an offer which is never mailed is not an offer even if the contents are known by the offeree in some manner. General offers are communicated to public through notice and advertise-ments. But as regards reward cases the question arises whether the person performing the conditions of the offer can claim the reward even if he is ignorant of the offer. In Lalman Shukla Vs. Gouri Dutt case it was held that knowledge of the offer is essential. There can be no acceptance unless there is knowledge of the offer. When the offer is not communicated silence on the part of the offeree does not amount to consent since he does not have the opportunity to reject the offer. E.g., A works for B without the request or knowledge of B. A cant sue B for remuneration since Bs consent cant be presumed from his silence. f) The terms and conditions of offer should also be communicated: An agreement is a twosided bargain based on freedom of contract. However, in modern times the buyer of an article is in an unfavourable position. Freedom of contract becomes one-sided in the case of agreements with common carriers, dry cleaners, tailors, insurance companies, landlords, public utilities etc. It is also difficult to draw up a separate agreement with each individual. Therefore, printed forms of agreements known as standard form contracts are used. Such forms contain large number of terms and conditions very often small in print absolving the dominant party of all liability. The economically weaker party has to accept all such terms and conditions irrespective of whether he likes them or not. The Court too finds it difficult at times to protect the interest of the weaker party. Therefore the courts have evolved certain methods. When the offer contains special terms and conditions the offeror must communicate all the terms and conditions either before or at the time of contracting in order to bind the acceptor. On the other hand if the acceptor knew that there was writing and knew or believed that the writing contained conditions he is then bound by the conditions even though he did not read them. It is enough if the offeror has done all that can be considered necessary to give notice to the acceptor.

g) Two identical offers do not make a contract: An offer made by a person may cross a similar one made by another person of course in the course of transit. They are just two identical or cross offers, though there seems to be identity of mind. h) An offer should not contain any term the non-compliance of which amounts to acceptance: There may be any number of terms and conditions in an offer. The acceptor can accept or reject them. While the offeror can prescribe mode of acceptance, he cant prescribe the form or time of refusal so as to fix a contract upon the acceptor. He cant say, for example, that if the offeree does not communicate before a given time, he is deemed to have accepted the offer.

Acceptance According to Sec. 2 (b) When the person to whom the proposal is made signifies his willingne ss thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise . By accepting the offer, the acceptor expresses his willingness to be bound by the terms and conditions of the offer. Regarding an offer and its acceptance, Anson has given an analogy of a lighted match stick. Acceptance is to an offer what a lighted match is to a train of gunpowder. It produces something which cant be recalled or undone. An acceptance turns the offer into a binding obligation. Rules Regarding Acceptance: a) An offer can be accepted only by the person to whom it is made: The offeree only has to accept the offer. In case it is accepted by any other person no agreement is formed. However, in case authority is given to another person to accept the offer on behalf of the person to whom it is made, it is a valid acceptance. b) Acceptance should be unconditional and absolute: Sec. 7 (I) states that the acceptance should be absolute and unconditional. The acceptor should accept the offer in toto. If it is qualified or conditional, it ceases to be valid. In fact, a qualified or conditional acceptance is nothing but a counter-offer. c) Acceptance should be communicated: The party accepting the offer must communicate his acceptance to the offeror. Acceptance is not a mental resolve but some external manifestation. The acceptance can be communicated in writing or word of mouth or also by conduct. An agreement does not result from a mere state of mind. As regards unilateral contracts (e.g., offer of reward) it is impossible to the offeree to communicate his acceptance otherwise than by performing the contract. In the case of bilateral contracts acceptance must be communicated. The offeror cant force a contract on

offeree by fixing the mode of refusal. Further, acceptance should be communicated only to the offeror and not to somebody else. d) Acceptance should be according to the prescribed form: Unless specified in the offer the acceptance must be in some usual and reasonable manner. The proposer has the right to prescribe the manner of acceptance. He may require it to be oral or in writing or to be communicated to him by phone or telephone etc. He can also waive his right or may ask the offeree to express acceptance by some gesture. Once he prescribes the mode of communication later he cant say that it was insufficient. If the offeree does not signify his assent to the offeror according to the mode prescribed it becomes deviated acceptance and strictly speaking it is no acceptance at all. However, such a regid rule is not followed in India. In the case of deviated acceptance the proposer may insist for the acceptance in the prescribed manner. He then has to do this within a reasonable time after communication of acceptance to him. Otherwise it will be presumed that the proposer has accepted the deviated acceptance. Sec. 7 of the Act does not tell that deviated acceptance is no acceptance. e) Acceptance must be provoked by offer: The acceptor must be aware of the offer. Even if he fulfills the conditions mentioned in the offer, if he is ignorant of the offer itself, he cant give a valid acceptance. [Lalmann Shukla V, Gouridutt]. f) Acceptance must be given before the offer lapses or is revoked: Where a time limit has been fixed the acceptor has to accept the offer within such time. Where no time limit is prescribed the acceptance has to be within the reasonable time. An offer once dead cant be accepted unless there is a fresh offer. g) Provisional acceptance is no acceptance: A provisional acceptance does not make a binding agreement unless final approval is given. The offer may be withdrawn before giving final approval. However, whether an agreement is provisional or final depends upon the intention of the parties. Contract by post: No problem arises where there is instantaneous communication of offer and acceptance which is possible when the parties are face to face. But how to determine the point of time when the contract is complete if the parties are at distance by each other ? As regards the point of time when the contract is complete, there is fundamental difference between English Law and Indian Law. Under English Law, the proposer is legally bound by the acceptance effected through postal medium when the letter is prepared, addressed, stamped and mailed eventhough it is delayed or lost in transit. Indian Law (Sec. 4) lays down that the communication of an acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the

acceptor; as against the acceptor when it comes to the knowledge of the proposer . The distinction between English Law and Indian Law lies with regard to the position of the acceptor. While under English Law, the acceptor is bound by acceptance the moment the letter is mailed properly, under Indian Law the communication of acceptance is complete as against, the acceptor only when it comes to the knowledge of the proposer. Termination of offer: Following are the circumstances under which an offer is terminated. a) Lapse : An offer lapses because of passage of time, death or insanity of the proposer. In case time limit for acceptance is prescribed by the offeror, offer lapses if not accepted within that time. In the absence of any stipulation of time, it has to be accepted within a reasonable time depending upon the circumstances of each case. A proposal is revoked by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. An acceptance is not effective if it is communicated to the legal representatives of the proposer. But in case the offeree is ignorant of the offerors death, it can be accepted. b) Failure to fulfill a condition procedent: Sec. 6 (3) provides that an offer is terminated by the failure of the acceptor to fulfil a condition precedent to acceptance. e.g., A offers to sell his car to B for Rs. 1,00,000 on the condition that B has to show his driving licence to A. B has to comply with this condition if he has to accept the offer. c) Rejection: By rejecting the offer offeror can terminate an offer. This rejection may be express or implied. A counter offer has the same effect as rejection. d) Destruction of the subject matter or illegality : If the thing offered is destroyed or cant be bought and sold due to operation of law, the offer itself lapses. e) Revocation: The withdrawal of an offer by the offeror is known as revocation. Till the acceptance of the offer, the offeror can revoke it. Sec. 5 provides that a proposal may be revoked by the proposer at any time before the communication of its acceptance is complete. Communication of acceptance as against the proposer is complete where it is put in the course of transmission to him so as to be out of the reach of the acceptor. In England, an acceptance cant be revoked. Contractual Capacity Legal disability of the parties would render the agreement entered into between them unenforceable in a court of law. In fact, even a desirable person may enter into an agreement. Law does not infringe his freedom of making an agreement with anybody he likes. But by declaring certain classes of persons having no contractual capacity, law seeks to protect their interests from being exploited by unscrupulous persons.

Definition: Section II lays down that 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 subj ect. This section declares following persons to be incompetent: (1) Minors (2) persons of unsound mind and (3) persons disqualified by law to which they are subject. Minors: A minor is a person who has not attained the age of majority. According to Indian Majority Act, 1875 the age of 18 years is a major. However, if a guardian is appointed by the court or if the minor or his property is under the supervision of a court of wards, the age of majority is 21 years. Principles governing minors contracts: The law protects minors persons, preserves either their rights and estates, excuses their shortcomings and negligences and assists them in their pleadings, the judges are their counsellors, the jury are their servants and law is their guardian. In pursuing the above objective, the law should not cause unnecessary hardship to those who deal with minors. Sec. II of the Act is silent as regards the legal effects of an agreement entered into by or with a minor. In Mohari Bibi Vs. Dharmo Das Ghosh case it was held that a minors agreement is voidab-initio. Effects of minors agreement: A minors agreement is void-ab-initio. Where there is no contract, there should be no contractual obligation on either side. Hence, the effects of a minors agreements are worked out independently of any contract. 1. No estoppel against minor: A minor who has made an agreement by misrepresentation of his age may disclose his real age. There is no estoppel against him. 2. No liability in contract or tort arising out of contract: A minor is, in law, incapable of giving consent. Hence, there could be no change in the character or status of the parties. A minor who misrepresents his age to obtain a contract cannt be sued for deceit. You cannt convert a contract into a tort to enable you to sue an infant. This principle has been followed in India. Where, however, the tort is independent of contract the mere fact that a contract is also involved will not absolve the minor from liability. 3. Doctrine of restitution: If a minor obtains property or goods by misrepresentating his age, he can be compelled to restore it but only so long as the same is traceable in his possession. This is known as the equitable doctrine of restitution. Suppose the minor has sold the goods he cant be made to repay the value of the goods because that would amount to enforcing a void contract.

However, when a minor invites the aid of the court for the cancellation of his contract the court may grant relief subject to the condition that he shall restore all benefits obtained by him under the contract or make suitable compensation to the other party. But the court will not compel any restitution by a minor even when he is a plaintiff, where the other party was aware of the infancy so that he was not deceived or where the other party was unscrupulous in his dealings with the minor. 4. Beneficial contracts: The law that a minors agreement is absolutely void has been confined to the cases where a minor is charged with obligations and the other party seeks to enforce them. On the other hand a minor is allowed to enforce a contract which is of some benefit to him and under which he is required to bear no obligations. A minor is capable of purchasing immovable property and he may sue to recover the possession of the property purchased by tendering the purchase money. A minor can be a beneficiary e.g., a payee, an endorsee, or a promisee under a contract. A promissory note executed in favour of a minor is valid and can be enforced in a court. 5. Ratification: On attaining majority, a person cant ratify an agreement made by him when he was a minor. Ratification relates back to the date of making of the contract. Therefore, a contract which was void originally cant be made valid by subsequent ratification. If it is necessary, a fresh contract should be made on attaining majority. A new contract requires a fresh consideration. The consideration which passed under the earlier contract cant be implied into the contract into which the minor enters on attaining majority. 6. Liability for necessaries (Sec. 68): Persons incompetent to contract are made liable for necessaries supplied to them. Sec. 68 reads If a person incapable of entering into a contract or any one whom he is legally bound to support is supplied by another person with necessaries suited to his conditions in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. The liability is only for necessaries. But what is necessary is not defined by the Act. We have to depend upon judicial decisions. Things necessary are those without which an individual cannt reasonably exist such as food, raiment, lodging etc. What may be necessary for one class may be luxury for another. Therefore, the class has to be ascertained and then whether a thing is a necessity or not has to be determined. To render an infants estate liable for necessaries, two conditions must be satisfied: (1) The contract must be for goods reasonably necessary for his support in his state of life and (2) he must not have already a sufficient supply of these necessaries. The supplier has to prove not only that the goods supplied were suitable to the conditions in life of the minor but that he was not sufficiently supplied with the goods of that class. Thus, the liability for supply of necessaries attaches only to the estate of a minor and he does not incur any personal liability.

Persons of Unsound Mind: A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effects upon his interests. A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind (Sec. 12). Two tests are laid to determine the soundness of mind while making a contract. They are (i) the person making a contract should be capable of understanding it and (ii) should be capable of forming a rational judgement as to its effects upon his interests. In English Law, a person of unsound mind is competent to contract. He may avoid his contract by satisfying the court that he was incapable of understanding the contract at the time of its formation and the other party knew it. The contract is voidable at his option. Under Indian Law, the agreement of a person of unsound mind is absolutely void. A person of unsound mind, however, may make a contract when he is of sound mind. Sec. 12 also puts the persons such as drunkard or a person who is delirious from fever in the same category as a person of unsound mind.

Free Consent One of the essentials of a valid contract is free consent. Sec. 13 of the Act defines consent as Two or more persons are said to consent where they agree upon the thing in the same sense. There should be consensus ad idem or identity of minds. The validity of a contract depends not only on consent of the parties but their consent must also be free. According to Sec. 14, consent is said to be free when it is not caused by (i) coercion as defined under Section 15, or (ii) undue influence as defined under Section 16, or (iii) fraud as defined under Section 17, or (iv) mis-representation or defined under Section 18, or (v) mistake subject to the provisions of Section 21, 21 and 22. 1. Coercion: (Sec. 15) Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. Under English Law, coercion must be applied to ones person only whereas under Indian Law it can be ones person or property. So also under English Law, the subject of it must be the

contracting party himself or his wife, parent, child or other near relative. Under Indian Law, the act or threat may be against any person. It is to be noted that the act need not be committed in India itself. Unlawful detaining or threatening to detain any property is also coercion. While threat to sue does not amount to coercion threat to file a false suit amounts to coercion since such an act is forbidden by Indian Penal Code. 2. Undue influence: In the words of Holland, Undue influence refers to the unconscious use of power over another person, such power being obtained by virtue of a present or previously existing dominating control arising out of relationship between the parties. According Sec. 16 (1) A contract is said to be induced by undue influence where the relation subsisting 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 other. A person is deemed to be in a position to dominate the will of other a) Where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress; c) Where a person who is in a position to dominate the will of another, enters into a contract with him and the transaction appears to be unconscionable. The burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Both coercion and undue influence are closely related. What contributes coercion or undue influence depends upon the facts of each case. Sec. 16 (i) provides that two important elements must be present. The first one is that the relations subsisting between the parties to a contract are such that one of them is in a position to dominate the will of the other. Secondly, he uses that position to obtain unfair advantage over the other. In other words, unlike coercion undue influence must come from a party to the contract and not a stranger to it. Where the parties are not in equal footing or there is trust and confidence between the parties, one party may be able to dominate the will of the other and use that position to obtain an unfair advantage. However, where there is no relationship shown to exist from which undue influence is presumed, that influence must be proved. Presumptions as to undue influence: Sec. 16 (2) mentions certain types of relationships which give rise to presumptions of undue influence. They are (i) parent and child (ii) guardian and

ward (iii) trustee and beneficiary (iv) religious advisor and disciple (v) doctor and patient (vi) solicitor and client (vii) fiance and fiancee. The presumption about undue influence is rebuttable one by proving that a ) the person complaining of undue influence had independent advice. b) Full disclosure of facts was made to him and he understood the same. c) There was no undue influence and adequate consideration was there. As regards the relationship between debtor and creditor, landlord and tenants, mother and daughter, husband and wife, grandson and grand/father there exists no presumption of undue influence. The party avoiding the contract must prove the existence of undue influence. Contracts with pardanashin women: A pardanashin woman is one who according to the customs of her community lives in complete seclusion. The law presumes undue influence in the case of a contract with a pardanashin women. Ordinary presumption is that a person who signs a document understands its contents. But as regards a pardanashin woman this presumption does not hold good. The burden of proof lies on the other party to show that there was no undue influence, that the party understood the contents and the effects of the document upon her interests. Unconscionable or catching bargains: When a dominant party enters into contract with a weaker party, he may take undue advantage or that others ignorance, infirmity or impaired bargaining power. Such contracts are known as unconscionable contracts. Sec. 16 (3) lays down that in the case of unconscionable bargain the onus of proof that the transaction was not induced by undue influence is on the person who is in a dominating position in relation to the other party to the contract. Coercion and undue influence distinguished: 1. In the case of coercion, contract is obtained by committing or treatening to commit an act punishable under Indian Penal Code. In the case of undue influence the consent is obtained by dominating the will of the other. 2. Coercion involves physical force. Undue influence involves moral force. 3. Coercion may proceed from a stranger and may be directed against a stranger. Undue influence must proceed from a party to the contract. 4. There is no presumption as regards coercion. On the other hand law presumes undue influence in certain circumstances. 5. The offence may be committed in or outside India in order to render it coercion. Undue influence must be exercised in India.

6. Coercion affects provisions of Indian Penal Code. There is no criminal liability for undue influence. 7. The party avoiding a contract under coercion has to restore any benefit he received under the contract to the other party. Under undue influence the party avoiding the contract may or may not be directed by the court to do so. 8. Fraud: A false statement made knowingly or without belief in its truth or recklessly careless whether it be true or false is called fraud. Sec. 17 of the Act instead of defining fraud, gives various acts which amount to fraud. Sec. 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 to induce him to enter into contract: 1. The suggestion that a fact is true when it is not true by one who does not believe it to be true. A false statement intentionally made is fraud. An absence of honest belief in the truth of the statement made is essential to constitute fraud. The false statement must be made intentionally. 2. The active concealment of a fact by a person who has knowledge or belief of the fact. Mere non-disclosure is not fraud where there is no duty to disclose. 3. A promise made without any intention of performing it. 4. Any other act fitted to deceive. The fertility of mans invention in devising new schemes of fraud is so great that it would be difficult to confine fraud within the limits of any exhaustive definition. 5. Any such act or omission as the law specially declares to be fraudulent. Essentials of fraud: 1. Making a false suggestion: There should be a false suggestion by a party who knows it to be false or the statement must have been made recklessly without caring to know its truthfulness. The false suggestion can be made by conduct of the party. 2. The representation must be of a fact. The false suggestion or representation must be of a fact and not of opinion or intention. Commendatory explanations as found in advertisements that a soap washes whiter than white do not constitute representations of fact. It is usual for a trader to praise his own goods. 3. Active concealment of facts amounts to fraud: Instead of making a false representation a person may conceal a material fact which according to him, if stated, would be disadvantageous to him, such concealment of fact amounts to suppression of truth. 4. A promise made without any intention of performing it: A promise includes a representation to the effect that the promisor has the intention of performing it. So if a party makes a promise without having any intention of performing it, he commits fraud e.g., buying goods with no intention of paying for the same.

5. Any other act filled to decieve: Sec. 17 (4) brings within the purview of Sec.17 all such acts which though apparently amount to misrepresentation of fact, may amount to fraud considering the facts of the case. 6. Any act of ommission which the law specifically declares to be fraudulent. 7. Misrepresentation should be addressed to the party misled: The idea behind making misrepresentation should be that the other person must act upon it. Once it is shown that the misrepresentation was addressed to him, it becomes fraud if the person acts upon it though the person making representation may say that he did not intend that the person to whom it was addressed, should act upon it. 8. The representation must induce the contract: The person to whom the representation is made should rely upon the same and should enter into a contract. A false representation is merely irrelevant if it has not induced the party to whom it was made to act upon it by entering into a contract. 9. The party acting on the representation should have been deceived and suffered damage. The aggrieved party can not set aside the contract if he has not sustained damage. If one knows that he is going to be deceived later he cannot complain of being deceived by entering into contract. Silence whether fraud ? While active concealment of a material fact is fraud, silence is not fraud except under two circumstances. There is no general duty cast upon a party to a contract to disclose to the other party material facts within his knowledge, but are unknown to the other party. This principle is known as Caveat Emptor (let the buyer beware) in contracts of sale of goods. However, under the following two circumstances silence would amount to fraud: a) Circumstances of the case cast a duty upon the person keeping silence to speak and (b) silence itself is equivalent to speech. Duty to speak arises when the parties to a contract are in a fiduciary relationships. Such contracts are known as uberrimae fide contracts, the most common examples being insurance contracts, contracts of suretyship, releases or compromises. When a person is under no duty to speak, he may become guilty of fraud by non-disclosure, if he voluntarily discloses something and then stops half the way. 4. Misrepresentation: Before entering into a contract, the parties will make certain statements inducing the contract. Such statements are called representation. A representation is a statement of fact made by one party to the other at the time of entering into contract with an intention of inducing the other party to enter into the contract. If the representation is false or misleading, it is known as misrepresentation. A misrepresentation may be innocent or intentional. An intentional misrepresentation is called fraud and is covered under Section 17. Sec. 18 deals with an innocent misrepresentation.

Sec. 18 misrepresentation means and includes (i) the positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believed it to be true. (ii) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, by misleading another to his prejudice. (iii) by 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. 1. Positive assertion of a fact: A person might have received information from an untrustworthy source or hear-say. But he may assert positively that a particular fact concerning the subject matter of the agreement is true. Then he is said to have misrepresented the fact. A false statement need not be made direct to the plaintiff. It is sufficient if it is made to a third party so that the plaintiff becomes aware of it. However, if the misrepresentation has not been embodied in the contract it creates no contractual obligation unless it turns out to be fraudulent. 2. Breach of duty: A person may commit breach of duty without any intention to deceive the other party thus gaining an unfair advantage over the other. When a party to the contract has a duty to disclose all the material facts concerning the subject matter of the contract, but does not do so, he is said to be guilty of misrepresentation. A representation may be true at the time of making it, but later becomes false. This should also be disclosed before the contract is entered into. 3. Causing mistake about the subject matter: If a party to an agreement induces the other to commit mistake as to the nature or quality of the subject matter of the agreement, he is guilty of misrepresentation. Distinction between fraud and misrepresentation: 1. In misrepresentation the person making the false statement honestly believes it to be true. In fraud, the false statement is made by person who knows that it is false or he does not care to know whether it is true or false. 2. There is no intention to deceive the other party when there is misrepresentation of fact. The very purpose of fraud is to deceive the other party to the contract. 3. Misrepresentation renders the contract voidable at the option of the party whose consent was obtained by misrepresentation. In the case of fraud the contract is voidable. It also gives rise to an independent action in tort for damages. 4. Misrepresentation is not an offence under Indian Penal Code and hence not punishable. Fraud, in certain cases is a punishable offence under Indian Penal Code. 5. Generally, silence is not fraud except where there is a duty to speak or the relation between parties is fiduciary. Under no circumstances can silence be considered as misrepresentation. 6. The party complaining of misrepresentation cannt avoid the contract if he had the means to discover the truth with ordinary deligance. But in the case of fraud, the party making a false statement cannot say that the other party had the means to discover the truth with ordinary deligance.

5. Mistake: Usually, mistake refers to mis-understanding or wrong thinking or wrong belief. But legally, its meaning is restricted and is to mean operative mistake. Courts recognise only such mistakes which invalidate the contract. Mistake may be mistake of fact (either unilateral or bilateral) or mistake of law (either Indian law or foreign law). Sec. 20 Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Sec. 21 A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not inforce in India has the same effect as a mistake of fact. Bilateral mistake: Sec. 20 deals with bilateral mistake. Bilateral mistake is one where there is no real correspondence of offer and acceptance. The parties are not really in consensus-ad-idem. Therefore there is no agreement at all. A bilateral mistake may be regarding the subject matter or the possibility of performing the contract. Mistake as to the subject matter: This mistake arises when the parties to the contract assume at the time of making the contract, that a certain state of things exists, but in reality it does not exist. Such a mistake may relate to (i ) existance of the subject matter: Two parties may enter into the contract on the assumption that the subject matter exists at the time contract. But actually it may have ceased to exist or has never existed at all. Then the contract becomes void. (ii) Identity of the subject matter: A mutual mistakes as to the identity of subject matter renders the contract void. (iii) A mistake as to the quality of the subject matter will not render the agreement void owing to the application of the principle of caveat emptor unless there is misrepresentation or guarantee by the seller. (iv)Price of the subject matter: An explanation to Sec. 20 provides that an erraneous opinion as to the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact. A mistaken notion about the value of a thing bought or sold may be unilateral or bilateral. If it is unilateral, the buyer or seller has to presume that he has made a bad bargain. Where the mistake is mutual and the parties enter into the contract with false assumption and mistake as to the value of the subject matter is the basis of their agreement, there cant be an enforceable contract between them.

(v) Title of the subject matter: If a person agrees to purchase property which is unknown to himself and the seller is his own already, the contract may be void. A mistake as to the title does not invalidate a contract since Sec. 14 of the Sale of Goods Act imposes an implied condition as to the title of the seller. Where there is no such warrantee or the buyer purchases his own property the agreement will be void-ab-initio. (vi) A false and fundamental assumption: A false and fundamental assumption going to the root of the contract would render the contract invalid. Mistake as to the possibility of performance: There may not be any possibility of the performance of the contract. This impossibility of performance may be physical or legal impossibility. However, impossibility of performance cannot be included under the head bilateral mistake as there is Sec. 56 which lays down a positive rule of law regarding responsibility. Unilateral mistakes: Mistake of one of the parties to a contract as to a matter of fact is known as unilateral mistake. Sec. 22 provides that a contract is not voidable merely because it was caused by unilateral mistake. A person is bound by an agreement to which he has expressed a clear assent unless the unilateral mistake is caused by misrepresentation or fraud. However, where consent to an agreement is given by a party to it under mistake which prevents the formation of a contract, the unilateral mistake multifies the consent and the contract becomes void. The following are such exceptional cases: (a)Mistake as to identity: It is a rule of law that if a person intends to contract with A, B cannot give himself any right under it. An offer can be accepted only by the person to whom it is offered. If it is accepted by some one else, there arises a unilateral mistake rendering the contract void. Mistake as to identity is of two types: (i) where the parties are dating with each other from a distance (ii) where they are face to face with each other. (b)Mistake as to the character of a written document: If a person signs a document under the mistaken impression that he is signing a document of a different nature altogether he may escape liability in the document signed by him, provided he can prove that the nature of the document is different from what it is supposed to be. One party to a contract may not disclose to the other the nature of the document and induce the other to sign the same. The other party may sign it presuming it to be a document of different nature. In such a case, the contract becomes wholly void for want of concent. Mistake of law: A mistake of law may be of law of land or of foreign law. Mistake as to the law of the land doesnot render the contract voidable as ignorance of law is no excuse.

Consideration Consideration means something in return.It is one of the essentials of valid contract. Ex Nudo Pacto Non Oritar Actio means out of bare promise no action arises. Definition: Blackstone defined consideration as the recompense given by the party contracting to the other. In the words of Pollack, Consideration is the price for which the promise o f the other is bought and the promise thus given for value is enforceable. Sec. 2 (d) of the Act defines consideration in the following terms: When at the desire of the promisor the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise. Rules Governing Consideration: (i) Consideration should be furnished at the desire of the promisor. The consideration should be the outcome of the desire of the promisor. The desire may be express or implied. The act done at the instance of third party or gratuitously does not become consideration. e.g. As house catches fire. B goes and helps in extinguishi ng it. B later cannot ask for any payment for his services. Even spiritual promises or mental satisfaction are not enforceable. The question arises whether a promise of a subscription to a public or charitable trust becomes legal. (Kedarnath Vs Gorie Mohammed). A mere promise is not enough. The promisee must have done some act or incurred expenses on the strength of the promise. (Abdul Aziz Vs Maznoon Ali). (ii) Consideration may move from the promisee or any other person: Sec. 2 (d) provides that the consideration may be furnished by the promisee or any other person. At this point Indian law differs from English law according to which the consideration must move from the promisee only and not from the third party. However, there is a doctrine known as constructive consideration under which if the person who was to take a benefit under the contract was nearly related by blood to the promisee, a right of action would vest to him. But this doctrine is no more valid. (iii) Consideration may be past, present or future: Past consideration is something done or not done at the request of the promisor, before the making of the agreement. Under English Law, past consideration is no consideration. Nevertheless, past consideration will support a subsequent promise of the promisor. If services are rendered under circumstances which raise an implication of a promise to pay for them, the subsequent promise to pay is merely fixing a reasonable compensation for the services.

In India past consideration is sufficient to support a promise provided it is made at the request of the promisor. Present consideration refers to one furnished at the time of the promise. Where both the parties to a contract promise to each other of doing or not doing something the consideration on both sides moves to a future date and is known as future consideration. Present and future considerations are also known as executed and executory consideration respectively. (iv) Consideration need not be adequate: The law does not expect that the consideration should be adequate. It is the lookout of the promisor. The parties as between themselves can determine adequate consideration. The consideration which the contracting parties give to each other need not be of equal value. However, explanation 2 to Sec. 25 provides that the agreement to which the consent of the promisor is given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into consideration by the court in determining whether the consent of the promisor was freely given. (v) Consideration should be valuable: The consideration should not be unreal or illusory or of the nature of moral obligation. It should be valuable, though the value of the consideration need not be the same as the value of the promise which it supports. (vi) The discharging of a pre-existing obligation is not consideration: The law may compel a person to do an act. Then the mere doing of such act cant become consideration for anothers promise. However, doing or agreeing to do more than what a person is legally bound amounts to good consideration. In the same way performing or promising to perform an existing obligation imposed by a previous contract will not form consideration. (vii) Consideration should be certain and lawful: Consideration should not be illusory or uncertain or impossible. Discovering a treasury by magic, for example, cannot form consideration. Exceptions to the rule no consideration, no contract: Sec. 25 of the Act declares that an agreement made without consideration is void. However, Sec. 25 also provides for the following statutory exceptions: 1. Agreement made on account of natural love and affection: It is valid provided it is in writing, is registered and is made between the parties standing in near relation to one another. Nearness of relation implies blood relationship. However, even mental relationship is equally nearness of relationship. 2. Promise to compensate voluntary services: Sec. 25 (2) provides that a promise to compensate wholly or in part a person who has already voluntarily done something for the promisor is valid and enforceable. E.g., A finds Bs purse and gives it to him. B promises to give A Rs. 50. This is a contract.

Sec. 2 (d) also deals with past consideration. But the difference between Sec. 2 (d) and Sec. 25 (2) is that under Section 2 (d) the services are rendered at the request of the promisor whereas under Section 25 (2) the services are voluntary. However, voluntary act should satisfy following conditions so as to become an exception: i) The voluntary act should have been done for the promisor and not anybody else. ii) The promisor must have been existing at the time when the act was done. iii) The promisor should be competent to contract at the time when the act was done. iv) The intention of the promisor should have been to compensate the promisee. v) The services rendered should not be immoral. 3. A promise to pay a time-barred debt: The time-barred debt i.e. the one barred by the law of limitation, cant be recovered. But Sec. 25 (3) provides that if a promise is made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits is valid and enforceable. However, mere oral promise or acknowledgement of debt is not enforceable. 4. A completed gift: In the case of a gift actually made not being an agreement to make a gift, no consideration is necessary. The donor and donee may not be the near relatives. 5. Agency: No consideration is necessary to create an agency. 6. Remission: No consideration is necessary for an agreement to receive less than what is due. Similarly, an agreement to extend time for performance of a contract need not be supported by consideration. 7. Contribution to charity: A promise to contribute to charity, though gratuitous, would be enforceable if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the object and undertakes a liability.

Privity of Contract The general rule of law is that a person who is not a party to a contract can not claim any rights under the contract even though the contract is for his benefit. Such a person is known as a stranger to the contract.

Though Indian Contract Act is silent about the position of a stranger to a contract, the Privy Council and later the Supreme Court extended the principle of the English Law to India. Exceptions: The rule discussed above has the following exceptions: 1. In the case of a trust or a charge: Where a trust is created by a contract, the beneficiary can enforce his rights which the trust has conferred upon him eventhough he is not a party to the contract creating the trust. 2. In the case of acknowledgement or estoppel: Wherein a contract between two parties, the promisee may be required to make a payment to a third party. The promisor may acknowledge the payment by conduct or otherwise to the third party. Then the third party can sue the promisor though there is no privity of contract between himself and the promisor. 3. In the case of assignment: When rights under a contract are assigned, the assignee can sue upon the contract for the enforcement of his rights. 4. In the case of family and marriage settlements: When a provision is made for the maintenance of female members of a Hindu family in a partition of Joint Hindu property, or for the marriage expenses of a female member the person for whose benefit such a provision is made is entitled to enforce the provision in her favour. 5. In the case of agency: A contract entered into by the agent acting within the scope of his authority can be enforced by the principal.

Lawful Object Section 23 of the Act seeks to impose limitations on the freedom of contract by declaring certain agreements to be void and certain others unlawful and void. Sec. 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 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. Unlawful consideration and objects: In the following cases consideration or the object of an agreement is unlawful: (a)Forbidden by law: Sec. 23 provides that if the consideration or object is forbidden by law it becomes unlawful and the agreement based on it also becomes unlawful and hence void. Under the English law a contract that is expressly or implicitly prohibited by statute is

termed as illegal contract. On the other hand Sec. 23 of the Act uses only the term unlawful. Though both illegal and unlawful agreements are void an illegal agreement is necessarily unlawful whereas an unlawful agreement need not be illegal. Nevertheless, the difference between the two is very thin and quite often they are used interchangeably. The term law under Sec. 23 means the enactment of the legislature, subordinate legislation and the Hindu and Mohammadan laws. (b)Defeat the provisions of any law: Sometimes the object may not be illegal. But it may aim at circumventing the provisions of any law. Then it becomes void under Section 23. (c)Fraudulent: An agreement entered into between the parties with a fraudulent purpose or to perpetuate fraud on others is void. (d)Injury to the person or property of another: If the object of an agreement is to cause injury to the person or property of another, then it is unlawful. (e)Immoral: Anson states, Although it has sometimes been said that contracts contrary to good morals are void the only aspect of immorality with which courts of law have actually dealt is sexual immorality.The same view was referred to by the Supreme Court. Thus though the word immoral is very comprehensive, Sec. 23 of the Act regards promises to pay in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreement to pay money for future cohabitation, contracts facilitating divorce as immoral. A promise to pay for past cohabitation has been held to be enforceable by the Supreme Court. But a promise to pay for future cohabitation whether adultery or not is unenforceable. So also a promise to pay for past cohabitation for securing the continuation of the cohabitation is not enforceable. Agreements interfering marital relations are also considered immoral. (f)Opposed to public policy: The Act has not defined the term public policy. Sec. 23 intends to leave what is opposed to public policy for the courts to decide considering the circumstances of the case. Lord Truro defined: Public policy is that principle of law which holds that no subject can lawfully to that which has a tendency to be injurious to the public or against the public good. As the courts can decide whether a particular type of agreement could be considered to be opposed to public policy the judiciary can invent new heads of public policy considering the economic and social conditions prevailing in India. Public Policy is an elastic term and its connotations may vary with the social structure of the state. Agreements which are held void on the ground that the consideration or object is opposed to public policy are as follows:

i) Trading with enemy: An agreement entered into with an enemy countrys citizen is against public policy. Because such an agreement if performed would benefit an enemy country or injure the State in its relations with other States. The term alien enemy means a person resident in the enemy country or the enemy-occupied territory. Even temporary residence is sufficient. ii) Stifling prosecution: An agreement which seeks to absolve an offender of the criminal liability either by promising not to prosecute him for his offence or withdraw a criminal case pending against him is known as an agreement to stifle prosecution. Such an agreement is unlawful as opposed to public policy. This principle of law was established in 1866. iii) Maintenance and champerty: Maintenance refers to an agreement seeking to provide assistance financial or otherwise to bring or defend a lawsuit. Champerty refers to the agreement for sharing the benefit to be derived from the lawsuit. The object of maintenance is to encourage speculative litigation whereas the object of champerty is to share the proceeds of the litigation. Under English law the agreements of this kind are illegal and void. However, it is not so in India. In order to be unlawful, they must be against public policy. Thus an agreement to render professional service with a bona-fide object of assisting a claim which is just, although made by way of maintenance is valid. But if it is made by way of champerty (i.e., making the remuneration dependent to any extent whatsoever upon the result of the suit) it is void. iv) Interference with the course of justice: Agreements for using improper influence of any kind with judges or officials of court, to bribe witnesses, inducing them to give false evidence etc. are opposed to public policy. Thus, any agreement intended to obstruct or prevent legal process or interfere in any manner the course of justice, is void. v) Trafficking in public offices: These agreements interfere with free exercise of governmental functions. They include agreements to influence public officers by promising illegal gratification, to provide money to the members of parliament for presenting his convictions on a certain legislation, sale of public offices etc. vi) Marriage brokerage contracts: Society desires to prevent reckless or unsuitable marriages. So third parties are not allowed to make money by bringing about matrimonial unions. Such agreements to pay money to one who brings marriage connections are void. vii)Agreements in restraint of trade: Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is void. However, an agreement in restraint of trade is valid in the following cases: sale of goodwill, partners agreements, trade combinations, negative stipulations in service agreements. vii) Agreements tending to create an interest against duty: If an agreement entered into by or with a public servant imposes an obligation upon such person to do something which is inconsistent with his duty (official) then it is void as being opposed to public policy.

ix) Agreements intefering with parental duties: Agreements tending to transfer absolutely the rights of parents over their children as to their custody, education and religious training are void as being opposed to public policy. Father being the natural guardian can entrust the custody of his children to others. But this is revokable. x) Agreements restraining personal liberty: An agreement which unduly restrains the liberty of an individual is void. Summary

The Indian Contract Act lays down the law relating to contracts. An agreement enforceable by law is a contract. To make a contract, there must be (I) an agreement and (ii) the agreement should be enforceable by law. All contracts are agreements but all agreements need not be contracts. The object or purpose of an agreement must be lawful. An agreement not enforceable by law is said to be void. 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. A void agreement is a nullity in the eyes of law creating no legal rights or obligations. Under Indian Companies Act, the Memorandum of Association and Articles of Association must be registered. The person making the proposal is called promisor and the person accepting it is called promisee. A contract is valid only if it is not caused by coercion, undue influence, misrepresentation, fraud or mistake. The object or purpose of an agreement must be lawful. 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. An offer should be made with an intention of creating a legal obligation. An offer must be communicated to the offeree. An offer should not contain any term the non-compliance of which amounts to acceptance. An acceptance turns the offer into a binding obligation. One of the essentials of a valid contract is free consen. Two or more persons are said to consent where they agree upon the thing in the same sense. Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Undue influence refers to the unconscious use of power over another person, such power being obtained by virtue of a present or previously existing dominating control arising out of relationship between the parties. A false statement made knowingly or without belief in its truth or recklessly careless whether it be true or false is called fraud.

Before entering into a contract, the parties will make certain statements inducing the contract. Such statements are called representation. Blackstone defined consideration as the recompense given by the party contracting to the other.

Doctrine of Frustration Discharge by subsequent or supervening impossibility or illegality:

Impossibility at the time of contract: There is no question of discharge of a contract which is entered into to perform something that is obviously impossible, e.g., an agreement to discover treasure by magic, because, in such a case there is no contract to terminate, it being an agreement void ab-initio by virtue of Section 56, Para 1, which provides: An agreement to do an act impossible in itself is void. Subsequent impossibility: Section 56, Para 2, declares: A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. The following conditions must be fulfilled: (1) that the act should have become impossible; (2) that impossibility should be by reason of some event which the promisor could not prevent; and (3) that the possibility should not be self-induced by the promisor or due to his negligence. Thus, under Section 56 (Para 2), where an extent which could not reasonably have been in the contemplation of the parties when the contract was made, renders performance impossible or unlawful, the contract becomes void and stands dischraged. This is known as frustration of the contract brought about by supervening impossibility. It is also known as the doctrine of supervening impossibility. The rationale behind the doctrine is that if the performance of a contract becomes impossible by reason of supervening impossibility or illegality of the act agreed to be done, it is logical to absolve the parties from further performance of it as they never did promise to perform an impossibility. The doctrine of supervening impossibility as enunciated in Section 56 (Para 2), is wider than the doctrine of frustration kn own to the English law. The doctrine of frustration is an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done. In the case of subsequent impossibility or illegality, the dissolution of the contract occurs automatically. It does not depend on the choice of the parties. Cases where the doctrine of supervening impossibility applies: A contract will be discharged on the ground of supervening impossibility in the following cases: 1. Destruction of subject-matter: When the subject-matter of a contract, subsequent to its formation, is destroyed, without the fault of the promisor or promisee, the contract is discharged. It is so only when specific property or goods are destroyed which cannot be regained.

2. Failure of ultimate purpose: Where the ultimate purpose for which the contract was entered into fails, the contract is discharged, although there is no destruction of any property affected by the contract and the performance of the contract remains possible. 3. Death or personal incapacity of promisor: Where the performance of a contract depends upon the personal skill or qualification or the existence of a given person, the contract is discharged on the illness or incapacity or the death of that person. 4. Change of law: A subsequent change in law may render the contract illegal and in such cases the contract is deemed discharged. The law may actually forbid the doing of some act undertaken in the contract, or it may take from the control of the promisor something in respect of which he has contracted to act or not to act in a certain way. Cases not covered by supervening impossibility: He that agrees to do an act must do it or pay damages for not doing it is the general rule of the law of contra ct. Thus, unless the performance becomes absolutely impossible (as discussed above), a person is bound to perform any obligation which he has undertaken, and cannot claim to be excused by the mere fact that performance has subsequently become unexpectedly burdensome, more difficult or expensive. Some of the cases where impossibility of performance is not an excuse are as follows: 1. Difficulty of performance: Increased or unexpected difficulty and expense do not, as a rule, excuse from performance. 2. Commercial impossibility: When in a transaction profits dwindle to a very low level or actual loss becomes certain, it is said that the performance of the contract has become commercially impossible. Commercial impossibility also does not discharge a contract. 3. Impossibility due to the default of a third person. The doctrine of supervening impossibility does not cover cases where the contract could not be performed because of the impossibility created by the failure of a third person on whose work the promisor relied. 4. Strikes and lock-outs: A strike by the workmen or a lock-out by the employer does not excuse performance because the former is manageable and the latter is self-induced. Where the impossibility is not absolute or where it is due to the default of the promisor himself, Section 56 would not apply. As such these events also do not discharge a contract. 5. Failure of one of the objects: When a contract is entered into for several objects, the failure of one of them does not discharge the contract.
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