Indian Contract Act 1872 - Comprehensive Notes

Offer / Proposal (Section 2(a))

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. The person making the offer is the "offeror" or "promisor," and the person to whom it is made is the "offeree" or "promisee."

Essential Elements of a Valid Offer:

1. Must create legal relations: An offer must be made with the intention of creating legal obligations. Social invitations or moral promises do not constitute valid offers.

2. Must be definite and certain: The terms of the offer must be clear and unambiguous. An offer containing vague terms cannot form the basis of a contract. In Taylor v. Portington (1855), an offer to lease "at such rent as may be mutually agreed upon" was held to be too vague.

3. Must be communicated: An offer must be communicated to the offeree. An acceptance without knowledge of the offer does not create a contract. In Lalman Shukla v. Gauri Dutt (1913), the Allahabad High Court held that a servant who found his employer's missing nephew without knowledge of the reward offer was not entitled to the reward.

4. Must be distinguished from an invitation to treat: Displaying goods in a shop window, advertisements, catalogues, and auction announcements are generally invitations to treat (invitations to make offers), not offers themselves. In Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953, English law), the display of goods in a self-service store was held to be an invitation to treat. However, a general offer made to the public (as in Carlill v. Carbolic Smoke Ball Co., 1893) can constitute a valid offer.

Types of Offers:

• General Offer: Made to the world at large. Anyone who fulfils the conditions of the offer can accept it. Example: reward offers, public advertisements with specific terms.
• Specific Offer: Made to a specific person or group. Only that person or group can accept it.
• Cross Offers: When two parties make identical offers to each other without knowledge of the other's offer. Cross offers do not constitute a contract as neither is an acceptance.
• Counter Offer: When the offeree proposes different terms, it constitutes a counter offer which operates as a rejection of the original offer and as a new offer.
• Standing/Continuing Offer: An offer that remains open for a period, such as a tender for supply of goods over a period.

Lapse and Revocation of Offer (Sections 4-6)

An offer lapses: (a) after the stipulated or reasonable time, (b) upon the death or insanity of the offeror (if the offeree learns of it before acceptance), (c) upon rejection or counter offer by the offeree, (d) upon revocation by the offeror before acceptance. An offer can be revoked at any time before communication of acceptance is complete against the proposer.

Acceptance (Section 2(b))

When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

Rules of Valid Acceptance:

1. Must be absolute and unconditional (Section 7): A conditional acceptance or acceptance with modifications is a counter offer, not an acceptance. The "mirror image rule" applies: acceptance must exactly mirror the terms of the offer.

2. Must be communicated (Section 4): Acceptance must be communicated to the offeror. Mental acceptance or silent acceptance is not valid. In Felthouse v. Bindley (1863, English law), silence was held not to constitute acceptance.

3. Must be in the prescribed manner (Section 7): If the offer prescribes a particular mode of acceptance, it must be accepted in that manner. If the offeree accepts in a different manner that is not less advantageous, the offeror must object within a reasonable time; otherwise, acceptance is deemed valid.

4. Must be given within a reasonable time: If no time is specified, acceptance must be within a reasonable period.

5. Must be given before the offer lapses: Acceptance after revocation or lapse of the offer is ineffective.

Communication of Offer and Acceptance (Section 4)

• Communication of an offer is complete when it comes to the knowledge of the offeree.
• Communication of acceptance is complete: as against the proposer, when it is put in course of transmission to him; as against the acceptor, when it comes to the knowledge of the proposer.

This means that in postal communications, the contract is formed when the acceptance letter is posted (as against the offeror) but only when it is received (as against the acceptor). The acceptor can revoke acceptance before it reaches the offeror.

Definition (Section 2(d))

"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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

In simple terms, consideration is the price paid for a promise. It is the foundation of every contract. The concept ensures that a contract is a bargain, not a gratuitous promise.

Essential Elements of Valid Consideration:

1. Must Move at the Desire of the Promisor: The act constituting consideration must have been done at the request or desire of the promisor, not voluntarily or at the request of a third party. In Durga Prasad v. Baldeo (1880), the plaintiff constructed shops at the request of the Collector, not the defendant. The defendant's promise to pay commission was held to be without consideration since the construction was not at the defendant's desire.

2. May Move from the Promisee or Any Other Person: This is a distinctive feature of Indian law. Under English law, consideration must move from the promisee. In India, consideration may move from the promisee or any third party. In Chinnaya v. Ramayya (1882), the Madras High Court held that consideration furnished by the plaintiff's mother (a third party) was valid consideration for the defendant's promise.

3. May Be Past, Present, or Future:

• Past consideration: An act done before the promise is made. Valid in India under Section 2(d) ("has done or abstained from doing"). Example: A finds B's purse and returns it. B promises to pay A a reward. A's past act is valid consideration for B's promise.
• Present (executed) consideration: An act done simultaneously with the promise. Example: cash sale - payment and delivery are simultaneous.
• Future (executory) consideration: A promise to do or abstain from doing something in the future. Example: A promises to deliver goods next month, and B promises to pay upon delivery.

4. Must Be Real and Not Illusory: Consideration need not be adequate, but it must be real. Courts do not examine the adequacy of consideration (Section 25, Explanation 2). If a person agrees to sell a property worth lakhs for one rupee, the courts will not intervene on grounds of inadequacy alone, though inadequacy may be evidence of undue influence or fraud.

However, consideration must not be:

• Physically impossible
• Legally impossible
• Uncertain or vague
• Illusory (something the promisor is already bound to do)

5. Must Be Lawful (Section 23): Consideration is unlawful if it is: forbidden by law, is of such a nature that if permitted it would defeat the provisions of any law, is fraudulent, involves injury to the person or property of another, or is immoral or opposed to public policy.

Exceptions to the Rule "No Consideration, No Contract" (Section 25)

The general rule is that an agreement without consideration is void. However, Section 25 provides three exceptions:

1. Natural Love and Affection (Section 25(1)): An agreement made without consideration is enforceable if it is: (a) expressed in writing, (b) registered under the law for the time being in force, and (c) made on account of natural love and affection between parties standing in a near relation to each other. The love and affection must be genuine and existing.

2. Compensation for Past Voluntary Services (Section 25(2)): A promise to compensate a person who has voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable even without consideration. The service must have been rendered voluntarily, for the promisor, and the promisor must be competent to contract.

3. Promise to Pay a Time-Barred Debt (Section 25(3)): A promise to pay wholly or in part a debt barred by the limitation law is enforceable if: (a) it is in writing, and (b) signed by the debtor or his authorised agent. It need not be registered.

Additional Exceptions:

• Completed gifts (Explanation 1 to Section 25): The rule that agreements without consideration are void does not affect the validity of a gift actually made and accepted.
• Agency (Section 185): No consideration is necessary to create an agency.
• Charity / Promissory Estoppel: Where a person makes a promise intending the other to act on it, and the other does act to their detriment, the promisor may be estopped from going back on the promise (Motilal Padampat Sugar Mills v. State of UP, 1979).

Section 11 - Who Are Competent to Contract

Every person is competent to contract who is: (a) of the age of majority according to the law to which he is subject, (b) of sound mind, and (c) not disqualified from contracting by any law to which he is subject.

1. Minors (Persons Below 18 Years)

Under the Indian Majority Act, 1875, a person attains majority on completing 18 years (21 years if a guardian has been appointed by the court). The law relating to minors' agreements is based on the landmark Privy Council decision in Mohori Bibee v. Dharmodas Ghose (1903).

Position in Law:

• Agreement with a minor is void ab initio: In Mohori Bibee, the Privy Council held that a minor's agreement is absolutely void and not merely voidable. Since Section 10 requires parties to be "competent to contract" and Section 11 excludes minors from competency, any agreement with a minor is void from the beginning.

• No estoppel against a minor: If a minor misrepresents his age and enters into a contract, the minor cannot be estopped from pleading minority. The doctrine of estoppel does not apply against a minor.

• No ratification: A void agreement cannot be ratified upon attaining majority. If a minor promises to pay for goods received as a minor, the promise upon majority is without consideration (the past consideration was void) and therefore unenforceable.

• Beneficial contracts: Certain contracts are valid if they are for the benefit of the minor. A contract for the supply of necessaries (food, clothing, shelter, education) to a minor is valid, and the minor's estate is liable (not the minor personally) under Section 68.

• Minor as beneficiary: A minor can be a beneficiary under a contract (e.g., a promisee, donee, or payee). A minor can enforce a contract in his favour, though he cannot be bound by one.

• Minor as an agent: A minor can act as an agent under Section 184, though the principal cannot hold the minor personally liable.

• Contract by guardian: A guardian can enter into a contract on behalf of a minor if it is within the guardian's competence and for the minor's benefit. Contracts relating to immovable property made by a minor's guardian are valid if they are for the necessity or obvious benefit of the minor.

• Liability in tort: A minor is liable in tort, but if the tort arises directly from a contract, the minor is not liable, as allowing such liability would indirectly enforce a void agreement.

• Doctrine of restitution: Under Section 64, if a minor obtains property by misrepresenting age, the court may direct restoration of the property (or its value) on equitable grounds, though this is restitution and not enforcement of contract.

2. Persons of Unsound Mind (Section 12)

A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

• A person who is usually of unsound mind but occasionally of sound mind may make a contract when of sound mind. Example: A patient in a lunatic asylum who is at intervals of sound mind may contract during lucid intervals.
• A person who is usually of sound mind but occasionally of unsound mind may not make a contract when of unsound mind. Example: A sane person who is delirious from fever may not contract during delirium.
• Agreements by persons of unsound mind are void, similar to those of minors.
• Categories include idiots (permanently incapable), lunatics (with intermittent capacity), persons under the influence of intoxicants, and persons suffering from mental decline due to age or illness.

3. Persons Disqualified by Law

Certain persons are disqualified from contracting by specific laws:

• Alien enemies: During wartime, contracts with subjects of an enemy country are void.
• Convicts: A convict undergoing sentence cannot enter into contracts, though this disability ceases upon completion of the sentence or upon pardon.
• Insolvent: An undischarged insolvent cannot enter into contracts relating to property that vests in the official assignee. Once discharged, the disability ceases.
• Foreign sovereigns and ambassadors: They enjoy diplomatic immunity and can enter contracts but can generally only be sued with their consent.
• Statutory bodies and companies: Their capacity is limited by the statute or memorandum creating them. Acts beyond their capacity are ultra vires and void.

Section 13 - What is Consent

Two or more persons are said to consent when they agree upon the same thing in the same sense (consensus ad idem). Consent is the meeting of minds; both parties must understand the terms of the agreement identically.

Section 14 - What is Free Consent

Consent is said to be free when it is not caused by: (1) Coercion (Section 15), (2) Undue influence (Section 16), (3) Fraud (Section 17), (4) Misrepresentation (Section 18), or (5) Mistake (Sections 20-22).

When consent is caused by any of the first four, the contract is voidable at the option of the party whose consent was so caused. When consent is caused by mistake, the agreement may be void.

1. Coercion (Section 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 IPC is or is not in force at the place where the coercion is employed.

Key features:

• The act threatened need not be directed at the contracting party; it may be against any person.
• The threat must be of an act forbidden by the IPC.
• Physical compulsion, threats of criminal prosecution, or threats to commit suicide (as in Chikham Amiraju v. Chikham Seshamma, 1918, where the Madras High Court held that threat of suicide amounts to coercion) can constitute coercion.
• The burden of proving coercion is on the party alleging it.

Effect: The contract is voidable at the option of the party whose consent was obtained by coercion (Section 19). The aggrieved party may either affirm or avoid the contract. If avoided, any benefit received must be restored (Section 64).

2. Undue Influence (Section 16)

A contract is said to be induced by undue influence where: (a) the relations subsisting between the parties are such that one party is in a position to dominate the will of the other, and (b) 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 another when: (i) he holds a real or apparent authority over the other (e.g., employer-employee, parent-child), (ii) he stands in a fiduciary relation to the other (e.g., doctor-patient, lawyer-client, spiritual adviser-disciple), or (iii) 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.

The burden of proof shifts depending on the relationship. Where the parties stand in a fiduciary relationship, the party in the dominant position must prove that the transaction was fair and that the other party had independent advice. In Ranganayakamma v. Alwar Setti (1889), a young widow was persuaded to adopt the defendant's son immediately after her husband's death. The Court set aside the adoption on grounds of undue influence.

The key distinction from coercion is that undue influence involves the abuse of a relationship of trust or authority, not the threat of physical harm or criminal acts.

3. Fraud (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 or to induce him to enter into the contract:

• Suggestion of a fact that is not true by one who does not believe it to be true
• Active concealment of a fact by one having knowledge or belief of the fact
• A promise made without intention of performing it
• Any other act fitted to deceive
• Any such act or omission as the law specially declares to be fraudulent

Mere silence does not constitute fraud unless there is a duty to speak (e.g., contracts of insurance, fiduciary relationships) or where silence is equivalent to speech (Section 17, Explanation).

Effect: The contract is voidable at the option of the party defrauded. Additionally, the defrauded party can claim damages in tort for deceit. The defrauded party may also insist on performance if they can be placed in the position they would have been in had the misrepresentation been true.

4. Misrepresentation (Section 18)

Misrepresentation includes: (a) a positive assertion not warranted by the information of the person making it, though he believes it to be true; (b) any breach of duty, without intent to deceive, which gives an advantage to the person committing it by misleading another to his prejudice; (c) causing a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement, however innocently.

The key distinction from fraud is the absence of intent to deceive. In misrepresentation, the person believes the statement to be true; in fraud, the person knows or believes it to be false.

5. Mistake (Sections 20-22)

• Bilateral Mistake of Fact (Section 20): Where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The mistake must be mutual and must relate to something essential, not merely collateral.
• Unilateral Mistake of Fact (Section 22): A contract is not voidable merely because one party was under a mistake of fact. However, if the unilateral mistake is so fundamental that there is no real consensus, the agreement may be void.
• Mistake of Law (Section 21): A contract is not voidable because it was caused by a mistake as to Indian law. Ignorance of law is no excuse. However, a mistake as to foreign law is treated as a mistake of fact.

Introduction

The Indian Contract Act expressly declares certain types of agreements as void. A void agreement has no legal effect from the beginning - it is a nullity in the eyes of the law. Neither party can enforce it, and no rights or obligations flow from it. It is important to distinguish void agreements (which are void from inception) from voidable contracts (which are valid until avoided by the aggrieved party) and from void contracts (which were valid when made but have subsequently become void).

1. Agreement Whose Object or Consideration Is Unlawful (Section 23-24)

Every agreement of which the object or consideration is unlawful is void. The consideration or object is unlawful if:

• It is forbidden by law
• It is of such nature that, if permitted, it would defeat the provisions of any law
• It is fraudulent
• It involves or implies injury to the person or property of another
• The court regards it as immoral or opposed to public policy

Examples of agreements opposed to public policy include: agreements in restraint of marriage, agreements in restraint of trade beyond reasonable limits, agreements to commit a crime, agreements interfering with the administration of justice, and agreements to defraud creditors.

If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the entire agreement is void (Section 24), unless the legal and illegal parts are severable.

2. Agreements Without Consideration (Section 25)

An agreement made without consideration is void, subject to the three exceptions discussed earlier: natural love and affection (in writing and registered), past voluntary services, and promise to pay time-barred debts (in writing and signed).

3. Agreements in Restraint of Marriage (Section 26)

Every agreement in restraint of the marriage of any person, other than a minor, is void. This applies to total and partial restraints. The only exception is an agreement by a person who is already married restraining themselves from marrying again during the subsistence of the first marriage.

The policy behind this provision is that marriage is a social institution and the freedom to marry is a fundamental right. Any agreement that limits this freedom is against public policy.

4. Agreements in Restraint of Trade (Section 27)

Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is void to that extent. The restraint may be total or partial.

However, Section 27 recognises an important exception: a buyer of goodwill of a business may restrain the seller from carrying on a similar business, within specified local limits, so long as the buyer carries on a like business therein, provided the limits are reasonable. In Percept D'Mark (India) v. Zaheer Khan (2006), the Supreme Court held that a restrictive covenant in an employment contract that operates after the termination of employment is void under Section 27.

Similar exceptions exist under the Indian Partnership Act (Sections 11, 36, 54) and the Companies Act.

5. Agreements in Restraint of Legal Proceedings (Section 28)

Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

Exceptions: (a) An agreement to refer disputes to arbitration is valid (this is the foundation of the Arbitration and Conciliation Act, 1996). (b) An agreement that shortens the period of limitation, provided it is reasonable, may be valid in certain contexts.

6. Agreements the Meaning of Which Is Uncertain (Section 29)

Agreements the meaning of which is not certain, or capable of being made certain, are void. Example: A agrees to sell B "a hundred tons of oil." The agreement is void for uncertainty because the type of oil is not specified. However, if the parties have a course of dealing or trade usage that makes the term certain, the agreement may be valid.

In Guthing v. Lynn (1831), a promise to pay an additional sum "if the horse is lucky" was held to be void for uncertainty.

7. Agreements by Way of Wager (Section 30)

Agreements by way of wager are void. A wager is an agreement between two parties by which one promises to pay money to the other on the happening or non-happening of a future uncertain event. Essential features: (a) mutual chance of gain or loss, (b) dependent on an uncertain event, (c) neither party has any interest in the event beyond the stake, (d) neither party has control over the event.

Exceptions: (a) A subscription or contribution towards a prize of a horse race is not a wager. (b) Contracts of insurance are not wagers because the insured has an insurable interest.

The effect of wager: the agreement is void, and any money paid under it cannot be recovered. In Maharashtra and Gujarat, wagering agreements are illegal (not merely void).

8. Impossible Agreements (Section 56)

An agreement to do an impossible act is void. If an act becomes impossible after the contract is made, the contract becomes void when performance becomes impossible. This is discussed further under "Performance and Discharge."

Definition (Section 31)

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. The word "contingent" means conditional. The essential features are: (1) it is a valid contract, (2) its performance depends on the happening or non-happening of a future uncertain event, (3) the event must be collateral (incidental) to the contract, and not part of the consideration or performance itself.

Examples: A contracts to pay B a sum of money if B's house is burnt down. This is a contingent contract. Insurance contracts are the most common examples of contingent contracts - the insurer's obligation to pay depends on the happening of the insured event.

Distinction from Wagering Agreements: Contingent contracts and wagers both involve uncertain events, but they differ fundamentally. In a contingent contract, the parties have a genuine interest in the subject matter beyond the contract itself (e.g., insurance - the insured has an interest in the property). In a wager, neither party has any interest except the bet itself. Contingent contracts are valid; wagers are void.

Rules Governing Enforcement of Contingent Contracts:

1. Contingent on the Happening of an Uncertain Future Event (Section 32):

Such contracts cannot be enforced until the event happens. If the event becomes impossible, the contract becomes void. Example: A agrees to pay B a sum if a certain ship returns within a year. The contract cannot be enforced if the ship sinks within the year (the event becomes impossible).

2. Contingent on the Non-Happening of an Uncertain Future Event (Section 33):

Such contracts can be enforced only when the happening of the event becomes impossible. Example: A agrees to pay B if a certain ship does not return. A must pay if the ship sinks.

3. Contingent on the Conduct of a Living Person (Section 34):

If a contract is contingent upon how a person will act at an unspecified future time, the event is considered impossible when the person does anything that makes it impossible that he should so act within any definite time, or otherwise than under further contingencies. Example: A agrees to pay B if B marries C. C marries D. The contract becomes void because the event of B marrying C has become impossible (assuming C's marriage to D subsists).

4. Contingent on an Event Happening Within a Fixed Time (Section 35, first paragraph):

Such contracts become void if, at the expiration of the fixed time, the event has not happened, or if before the time fixed, the event becomes impossible. Example: A promises to pay B if a certain ship returns within a year. The contract becomes void if the ship does not return within the year, or if it sinks before the year is out.

5. Contingent on an Event Not Happening Within a Fixed Time (Section 35, second paragraph):

Such contracts may be enforced when the specified time has expired and the event has not happened, or before the time specified has expired, if it becomes certain that the event will not happen. Example: A promises to pay B if a ship does not return within a year. The contract may be enforced if the ship sinks during the year (it is certain the ship will not return), or at the expiry of the year if the ship has not returned.

6. Contingent on an Impossible Event (Section 36):

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. Example: A agrees to pay B a sum if B marries A's daughter, C. C was dead at the time of the agreement. The agreement is void.

Practical Significance

Contingent contracts are extremely common in modern commercial practice. Insurance contracts, indemnity contracts, guarantees, and many financial derivatives are all forms of contingent contracts. Understanding the rules governing their enforcement is essential for commercial law practice. The key takeaway is that the enforceability depends entirely on the occurrence or non-occurrence of the contingent event, and the contract remains in a state of suspended enforceability until the contingency is resolved.

Performance of Contracts (Sections 37-67)

Performance is the fulfilment of the obligations undertaken by the parties under a contract. When both parties have performed their respective obligations, the contract is said to be discharged by performance.

Who Must Perform (Sections 37-41)

• Promisor himself: Where the contract involves personal skill, taste, or judgment, the promisor must perform personally. Example: A promises to paint a picture for B. A must paint the picture himself.
• Agent or representative: Where personal performance is not the essence of the contract, the promisor may employ a competent agent to perform. Example: A promises to deliver goods to B. A can send the goods through a carrier.
• Legal representative: On the death of the promisor, obligations devolve on the legal representative, unless the contract is of a personal nature. The representative is liable only to the extent of the deceased's assets.
• Third person: If a promisee accepts performance from a third person, the promisor is discharged from liability (Section 41).
• Joint promisors (Section 42-44): When two or more persons make a joint promise, all must jointly fulfil the promise during their lifetime. After the death of any of them, the representative must join with the survivors. Joint promisors are jointly and severally liable, and the promisee may compel any one or more to perform the whole.

Time and Place of Performance (Sections 46-50)

• Where no time is specified, the promise must be performed within a reasonable time (Section 46).
• Where time is specified but no place, the promisor must ask the promisee to fix a reasonable place (Section 49).
• Where no time is specified, the promisor must perform within a reasonable time during usual business hours and at the promisee's place of business (Section 50).
• Time is of the essence when the parties expressly agree, or when delay would make performance useless (Section 55).

Discharge of Contracts

A contract is discharged (terminated) when the obligations under it cease to exist. Discharge can occur in the following ways:

1. Discharge by Performance: Both parties perform their obligations fully and exactly as agreed. This is the most natural and desirable mode of discharge.

2. Discharge by Mutual Agreement (Sections 62-63):

• Novation: Substitution of a new contract for the old one, with the consent of all parties.
• Rescission: Cancellation of the contract by mutual agreement.
• Alteration: Change in one or more terms of the contract with mutual consent.
• Remission (Section 63): Acceptance of a lesser sum or lesser performance than what was due. Unlike English law (which requires fresh consideration for accord and satisfaction), Indian law allows a promisee to remit or accept any satisfaction.
• Waiver: Intentional relinquishment of a known right.

3. Discharge by Impossibility of Performance / Frustration (Section 56):

An agreement to do an act impossible in itself is void (initial impossibility). A contract to do an act which, after the contract is made, becomes impossible or unlawful becomes void when the act becomes impossible or unlawful (subsequent impossibility or supervening impossibility).

The doctrine of frustration applies when: (a) the subject matter of the contract is destroyed, (b) the personal incapacity of a party renders performance impossible, (c) a change in law makes performance illegal, (d) the occurrence of an event on which the contract was based does not happen, or (e) the declaration of war renders the contract with an enemy alien void.

In Satyabrata Ghose v. Mugneeram Bangur (1954), the Supreme Court discussed the doctrine of frustration under Indian law, holding that it is covered by Section 56 and that the court must determine whether performance has become truly impossible or radically different from what was contemplated.

However, frustration does not apply to: mere difficulty, inconvenience, or commercial hardship; self-induced frustration (where the promisor causes the impossibility); or situations covered by a force majeure clause in the contract.

4. Discharge by Lapse of Time: If a party fails to perform within the limitation period and the other party does not enforce the contract within the prescribed time under the Limitation Act, 1963, the contract is discharged.

5. Discharge by Operation of Law: Including merger, insolvency, and unauthorized alteration of a written agreement.

6. Discharge by Breach: Discussed in the next chapter.

Types of Breach

A breach of contract occurs when a party fails to perform their obligation under the contract without lawful excuse. Breach can be of two types:

1. Actual Breach: This occurs when a party fails to perform on the due date or during performance. It may be: (a) a failure to perform at the stipulated time (e.g., failing to deliver goods on the agreed date), or (b) a failure to perform in accordance with the terms (e.g., delivering defective goods).

2. Anticipatory Breach (Section 39): This occurs when a party, before the due date of performance, either expressly or impliedly indicates their intention not to perform. When one party renounces the contract before performance is due, the promisee may: (a) treat the contract as broken and immediately sue for damages, even before the due date, or (b) wait until the time for performance and then sue.

In Frost v. Knight (1872, English law, applied in India), the defendant promised to marry the plaintiff upon his father's death but broke off the engagement during the father's lifetime. The Court held that the plaintiff could sue immediately without waiting for the father's death.

If the promisee waits until the due date and in the interim the contract becomes impossible (e.g., supervening impossibility), both parties are discharged and neither can claim damages.

Remedies for Breach of Contract

The injured party has several remedies available:

1. Damages (Sections 73-74)

Section 73 - Compensation for Loss or Damage:

When a contract is broken, the party suffering thereby is entitled to receive compensation for any loss or damage caused by the breach, which naturally arose in the usual course of things from such breach, or which the parties knew, at the time they made the contract, to be likely to result from breach of it.

This section embodies the rule in Hadley v. Baxendale (1854), which establishes two limbs of recoverable damages:

• First limb (ordinary damages): Loss naturally arising from the breach in the usual course of things
• Second limb (special damages): Loss that the parties actually or constructively knew at the time of contracting would likely result from the breach

Remote and indirect losses are not compensable. The injured party must also take reasonable steps to mitigate the loss.

Types of Damages:

• Ordinary (General) Damages: Losses that flow naturally from the breach. Example: If a seller fails to deliver goods, the buyer can claim the difference between the contract price and the market price on the date of delivery.

• Special Damages: Losses arising from special circumstances known to both parties. Example: A carrier knows the goods are needed for a specific exhibition. If the carrier delays delivery, they are liable for loss of exhibition profits.

• Exemplary (Punitive) Damages: Not ordinarily available in contract law, but may be awarded in cases of breach of promise to marry and dishonour of a cheque by a bank (Bank of Maharashtra v. Automotive Engg. Co., 1993).

• Nominal Damages: A token sum awarded when breach is established but no actual loss is proved.

Section 74 - Liquidated Damages and Penalty:

When a contract contains a term specifying a sum to be paid in case of breach, the party complaining of breach is entitled to receive reasonable compensation not exceeding the stipulated amount, whether or not actual damage or loss is proved. Unlike English law (which distinguishes between a genuine pre-estimate of loss and a penalty), Indian law under Section 74 treats all stipulated amounts as the upper limit, and the court awards "reasonable compensation" within that ceiling.

In Fateh Chand v. Balkishan Das (1963), the Supreme Court held that under Section 74, the court must award reasonable compensation, and the sum named in the contract is merely the maximum limit. The court is not bound to award the entire stipulated amount.

2. Specific Performance

The court may order the party in breach to actually perform the contract, rather than merely paying damages. This remedy is governed by the Specific Relief Act, 1963. Specific performance is typically granted when: (a) damages would be an inadequate remedy, (b) the subject matter is unique (e.g., immovable property, rare goods), (c) the court can supervise performance.

3. Injunction

A court order restraining a party from doing something. If a contract contains a negative covenant (a promise not to do something), the court may enforce it by injunction.

4. Quantum Meruit

When a party has performed part of the contract and the other party prevents further performance, the performing party may claim reasonable compensation for work already done on a quantum meruit basis ("as much as earned"). This is discussed under quasi-contracts as well.

5. Rescission

The aggrieved party may treat the contract as at an end and refuse further performance, freeing both parties from future obligations while preserving the right to claim damages for breach.

Nature and Basis

Quasi-contracts (also called contracts "implied in law" or "obligations resembling contracts") are not true contracts because they lack one or more essential elements, typically mutual consent. They are obligations imposed by law to prevent unjust enrichment. The underlying principle is that no person should benefit at the expense of another unjustly.

The Indian Contract Act does not use the term "quasi-contract." Chapter V is titled "Of Certain Relations Resembling Those Created by Contract." However, the term "quasi-contract" is widely used in practice and academic literature. The obligations arise by operation of law, not from agreement between the parties.

Sections 68-72 - Five Situations

1. Supply of Necessaries to Incapable Persons (Section 68)

If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Key aspects:

• The incapable person (e.g., minor, person of unsound mind) is not personally liable; only their property/estate is liable.
• "Necessaries" must be suited to the condition in life of the incapable person. What constitutes necessaries depends on the social status and actual requirements. It includes food, clothing, lodging, education, medical treatment, and other essentials.
• Luxuries or non-essential items do not qualify as necessaries.
• The supplier must prove that the goods/services were necessaries and were actually supplied.

Example: A supplies B, a lunatic, with necessaries suitable to B's condition in life. A is entitled to be reimbursed from B's property.

2. Reimbursement of Person Paying Money Due by Another (Section 69)

A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.

Key aspects:

• The person paying must have an interest in making the payment (not a mere volunteer or stranger).
• The other person must be bound by law to make the payment.
• The payment must actually be made.

Example: B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the Government being in arrear, B pays the revenue to the Government. B is entitled to be reimbursed by A for the amount paid.

3. Obligation of Person Enjoying Benefits of Non-Gratuitous Act (Section 70)

Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.

Key requirements:

• The act must be lawful (not illegal or tortious).
• The person must not have intended it to be gratuitous (must have expected payment).
• The other person must have enjoyed the benefit.

Example: A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. B is bound to pay A for them.

This section codifies the doctrine of quantum meruit in part and is frequently invoked in cases where services are rendered without a formal contract.

4. Responsibility of Finder of Goods (Section 71)

A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee. This means the finder must:

• Take reasonable care of the goods (as a person of ordinary prudence would of his own goods)
• Not convert them to his own use
• Return them to the owner if the owner can be found
• Surrender them to the owner upon demand

The finder may retain the goods until the owner pays lawful charges for their preservation and trouble. If the owner cannot be found with reasonable diligence, the finder may sell perishable goods, or goods where lawful charges amount to two-thirds of the value.

5. Money Paid by Mistake or Under Coercion (Section 72)

A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

• Mistake: Both mistake of fact and mistake of law are covered. In Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf (1959), the Supreme Court held that money paid under a mistake of law is recoverable under Section 72, departing from the English law position that only mistake of fact gives rise to recovery.
• Coercion: Money paid under coercion (e.g., under threat of criminal prosecution) can be recovered.

The plaintiff need not prove the existence of a contract. The cause of action arises from the receipt of money to which the recipient is not entitled.

Significance

Quasi-contractual obligations fill important gaps in the law of contracts. They provide remedies in situations where strict contractual principles would lead to unjust results. They are based on the equitable principle that a person should not be allowed to enrich himself unjustly at the expense of another. The doctrine of "unjust enrichment" underlying these provisions has been recognised as a principle of equity in numerous Supreme Court decisions.

Contract of Indemnity (Sections 124-125)

Definition (Section 124): A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity."

The person who promises to make good the loss is the "indemnifier" and the person whose loss is to be made good is the "indemnity-holder" or "indemnified."

Scope: Section 124 literally covers only losses caused by the conduct of the promisor or a third person. However, Indian courts have applied the concept more broadly. An insurance contract, for instance, is a contract of indemnity even though the loss may be caused by natural events and not by any person's conduct.

Rights of the Indemnity-Holder (Section 125):

The indemnity-holder, acting within the scope of his authority, is entitled to recover from the indemnifier:

1. All damages which he may be compelled to pay in any suit

2. All costs which he may be compelled to pay in any such suit (if he acted prudently, as the indemnifier would have directed, or in the absence of directions)

3. All sums which he may have paid under the terms of any compromise of any such suit (if the compromise was prudent or authorised by the indemnifier)

The Act does not expressly state when the indemnifier's liability commences (whether upon the indemnity-holder actually suffering loss or upon the accrual of liability). However, courts have held that the indemnity-holder need not wait until he actually suffers loss; the right to be indemnified arises when the liability becomes absolute and certain.

Contract of Guarantee (Sections 126-147)

Definition (Section 126): A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety," the person for whom the guarantee is given is the "principal debtor," and the person to whom the guarantee is given is the "creditor."

A guarantee may be oral or in writing (Section 126). This is unlike English law, which requires a guarantee to be in writing under the Statute of Frauds.

Essential Features:

• Tripartite arrangement: Three parties (surety, principal debtor, creditor) and three contracts (between creditor and principal debtor, between creditor and surety, and between surety and principal debtor).
• Existence of a principal debt: A guarantee presupposes a principal debt or obligation. If the principal obligation is void, the guarantee is also void.
• Consideration: Anything done, or any promise made, for the benefit of the principal debtor is sufficient consideration for the surety (Section 127).

Distinction Between Indemnity and Guarantee:

• In indemnity, there are two parties; in guarantee, there are three.
• In indemnity, the indemnifier's liability is primary and original; in guarantee, the surety's liability is secondary and collateral.
• In indemnity, there is one contract; in guarantee, there are three contracts.
• In indemnity, the indemnifier cannot sue the third party (generally); in guarantee, the surety can sue the principal debtor after paying the creditor (right of subrogation).

Types of Guarantee:

• Specific guarantee: For a single transaction.
• Continuing guarantee (Section 129): A guarantee that extends to a series of transactions. Example: A guarantees payment by B to C for goods supplied from time to time. A continuing guarantee can be revoked by the surety as to future transactions by giving notice to the creditor (Section 130).

Surety's Rights:

• Right of Subrogation (Section 140): When the surety pays the creditor, the surety steps into the shoes of the creditor and gets all the rights that the creditor had against the principal debtor.
• Right of Indemnity (Section 145): The surety can recover from the principal debtor all amounts rightfully paid under the guarantee.
• Right to Securities (Section 141): The surety is entitled to the benefit of every security that the creditor had against the principal debtor at the time the guarantee was given.
• Right of Contribution (Sections 146-147): Where there are co-sureties, each is liable to contribute equally (or as agreed) to the payment.

Discharge of Surety:

The surety is discharged when:

• The principal debt is paid or discharged (Section 134)
• The creditor and principal debtor vary the terms of the contract without the surety's consent (Section 133)
• The creditor releases the principal debtor (Section 134)
• The creditor compounds with, gives time to, or agrees not to sue the principal debtor without surety's consent (Sections 135-137)
• The creditor's act or omission impairs the surety's eventual remedy against the principal debtor (Section 139)
• The creditor loses or parts with the security without surety's consent (Section 141)

Contract of Bailment (Sections 148-171)

Definition (Section 148): A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor" and the person to whom they are delivered is called the "bailee."

Essential Elements:

1. Delivery of goods (not transfer of ownership; only possession is transferred)

2. Delivery for a specific purpose

3. A contract (express or implied) that the goods will be returned or disposed of as directed

4. The goods must be moveable property

Delivery may be actual (physical handover) or constructive (e.g., handing over the key of a warehouse where goods are stored, or a document of title).

Types of Bailment:

Based on benefit: (a) Bailment for the sole benefit of the bailor (e.g., leaving goods with a friend for safekeeping gratuitously), (b) Bailment for the sole benefit of the bailee (e.g., lending a book to a friend), (c) Bailment for the mutual benefit of both (e.g., hiring a car, pledging goods for a loan).

Duties of the Bailee:

• Duty of reasonable care (Section 151): The bailee is bound to take as much care of the goods bailed as a man of ordinary prudence would take of his own goods of the same bulk, quality, and value. This standard applies regardless of whether the bailment is gratuitous or for reward. If the bailee takes the required care, he is not liable for loss, destruction, or deterioration of the goods (Section 152).

• Duty not to make unauthorised use (Section 154): If the bailee uses the goods in a manner inconsistent with the conditions of the bailment, the bailor can terminate the bailment and the bailee is liable for any loss or damage.

• Duty not to mix goods (Sections 155-157): The bailee must keep the bailor's goods separate. If mixed with bailor's consent, both have a proportionate interest. If mixed without consent, the bailee must bear the expense of separation and is liable for any damage.

• Duty to return goods (Section 160-161): Upon accomplishment of the purpose or expiry of time, the bailee must return the goods without demand. If the bailee fails to return, he is liable for any loss, destruction, or deterioration, even without negligence.

• Duty to return accretions (Section 163): Any natural increase or profits from the goods must be returned to the bailor. Example: A leaves a cow with B. The cow has a calf. B must return both the cow and the calf.

Rights of the Bailee:

• Right to be reimbursed for expenses (Section 158)
• Right to exercise lien over the goods for charges due (Sections 170-171)
• Right to recover damages if bailor fails to disclose known faults in the goods (Sections 150, 152)

Particular and General Lien:

• Particular lien (Section 170): The bailee can retain the specific goods bailed until charges for services rendered in respect of those goods are paid. Available to bailees who have bestowed labour or skill.
• General lien (Section 171): Available only to bankers, factors, wharfingers, attorneys, and policy brokers. They can retain any goods bailed to them for any amount due to them, not just for charges related to the specific goods.

Contract of Pledge (Sections 172-181)

Definition (Section 172): The bailment of goods as security for payment of a debt or performance of a promise is called "pledge." The bailor is called the "pawnor" and the bailee is called the "pawnee."

Pledge is a special type of bailment with a specific purpose: securing a debt or obligation.

Rights of the Pawnee:

• Right of retainer (Section 173): The pawnee may retain the goods pledged not only for payment of the debt or performance of the promise but also for interest, expenses, and subsequent advances (if agreed).
• Right to extraordinary expenses (Section 175): The pawnee is entitled to receive extraordinary expenses incurred for the preservation of the goods.
• Right of sale on default (Section 176): If the pawnor defaults in payment, the pawnee may: (a) bring a suit against the pawnor for the debt and retain the goods as collateral security, or (b) sell the goods after giving reasonable notice to the pawnor. If the proceeds of sale exceed the debt, the surplus must be returned to the pawnor. If the proceeds are insufficient, the pawnor remains liable for the deficiency.

Rights of the Pawnor:

• Right to redeem the goods at any time before the actual sale (Section 177)
• Right to receive surplus from sale
• Right to receive back the goods upon payment of debt

Pledge by Non-Owners (Sections 178-179):

Generally, only the owner can pledge goods. However, the Act recognises certain exceptions: (a) Pledge by a mercantile agent in possession of goods with the consent of the owner (Section 178), (b) Pledge by a person in possession under a voidable contract that has not been rescinded (Section 178A), (c) Pledge by a person having a limited interest (Section 179) - the pledge is valid to the extent of that interest, and (d) Pledge by a seller or buyer in possession under the Sale of Goods Act.

Definition and Nature

An "agent" is a person employed to do any act for another or to represent another in dealings with third persons (Section 182). The person for whom such act is done, or who is so represented, is called the "principal." The contract of agency is based on the Latin maxim "qui facit per alium facit per se" (he who acts through another acts himself).

Creation of Agency

An agency may be created:

1. By Express Agreement: The principal expressly appoints the agent, either orally or in writing. A formal instrument of agency is called a "power of attorney."

2. By Implied Agreement: Agency may be inferred from the circumstances of the case, the conduct of the parties, or the relationship between them. Example: A wife purchasing household necessaries on her husband's account may be an implied agent.

3. By Ratification (Sections 196-200): When a person acts as agent without authority, or exceeds authority, the principal may subsequently ratify the act, which then becomes binding as if it had been done with prior authority. Ratification relates back to the date of the original act. However, ratification must be of the whole act (cannot ratify in part), must be by a person with full knowledge of the facts, and cannot injure a third party.

4. By Necessity: Agency of necessity arises when a person acts for another in an emergency without express authority, because it is impossible to communicate with the principal and the action is necessary to protect the principal's interests. Example: A carrier of perishable goods may sell them if they are in danger of spoiling and the owner cannot be reached.

5. By Estoppel (Section 237): If a principal by conduct leads a third party to believe that a person is his agent, the principal is estopped from denying the agency, even if no actual agency exists.

Consideration Not Necessary (Section 185): No consideration is necessary to create an agency. This is a statutory exception to the general rule that agreements without consideration are void.

Who May Be an Agent (Section 184): Any person may become an agent, including a minor or person of unsound mind. However, the agent cannot be held personally liable to the principal if incompetent. The principal must be competent to contract, as the agent acts on the principal's behalf.

Agent's Authority:

• Express Authority: Specifically conferred in writing or orally.
• Implied Authority (Section 187): The authority to do everything necessary and lawful for carrying out the purpose of the agency.
• Apparent / Ostensible Authority: Authority that a third party reasonably believes the agent possesses based on the principal's conduct.

Duties of an Agent:

• To conduct business according to principal's directions or custom of trade (Section 211)
• To carry out work with reasonable skill and diligence (Section 212)
• To render proper accounts (Section 213)
• To communicate with the principal in cases of difficulty (Section 214)
• Not to deal on his own account in the business of the agency without the principal's consent (Sections 215-216)
• To pay sums received on behalf of the principal (Section 218)
• Not to delegate authority (delegatus non potest delegare), except where custom permits, the nature of the agency requires, or the principal consents (Section 190)

Duties of the Principal:

• To indemnify the agent against lawful acts done within authority (Section 222)
• To compensate the agent for injury caused by principal's neglect or want of skill (Section 225)

Agent's Lien (Section 221): An agent has a right to retain goods, papers, and other property of the principal received by him until the amount due to him for commission, disbursements, and services is paid.

Termination of Agency (Sections 201-210):

An agency is terminated by: (a) revocation by the principal, (b) renunciation by the agent, (c) completion of the agency business, (d) death or insanity of either party, (e) insolvency of the principal, (f) destruction of the subject matter, (g) expiry of time, or (h) the principal becoming an alien enemy.

An agency coupled with interest cannot be revoked to the prejudice of the agent's interest (Section 202). Example: Where the agent has advanced money and has been given authority to sell property to recover the advance, the authority cannot be revoked.

Reasonable notice must be given before revocation or renunciation (Sections 205-206). Revocation or renunciation without sufficient cause entitles the other party to compensation (Section 205).

Personal Liability of Agent:

Generally, an agent is not personally liable to third parties; only the principal is. However, an agent becomes personally liable when: acting for a foreign principal, acting for an undisclosed principal, the agent contracts in his own name, or custom or usage makes the agent liable.

Key Judicial Decisions

1. Mohori Bibee v. Dharmodas Ghose (1903) - Privy Council

A minor mortgaged his property to a moneylender. The Privy Council held that a minor's agreement is void ab initio, not merely voidable. Since Section 10 requires parties to be competent, and a minor is not competent under Section 11, the agreement is a nullity from the start. The moneylender could not recover the mortgage money even though the minor had misrepresented his age.

2. Lalman Shukla v. Gauri Dutt (1913) - Allahabad HC

A servant found his master's missing nephew without knowing of a reward that had been announced. The Court held that the servant was not entitled to the reward because he did not know about the offer (proposal) when he performed the act. Acceptance requires knowledge of the offer.

3. Carlill v. Carbolic Smoke Ball Co. (1893) - English, applied in India

The company advertised that it would pay 100 pounds to anyone who contracted influenza after using its smoke ball as directed. Mrs. Carlill used the product and contracted flu. The Court held this was a general offer made to the world, and Mrs. Carlill's use of the product constituted acceptance. Communication of acceptance is not required in unilateral contracts; performance suffices.

4. Balfour v. Balfour (1919) - English, applied in India

A husband promised his wife a monthly allowance while she stayed in England for health reasons. When they separated, the wife sued for the allowance. The Court held that domestic agreements between spouses are not intended to create legal relations and are therefore not enforceable contracts.

5. Chinnaya v. Ramayya (1882) - Madras HC

An old lady gifted her property to her daughter with a condition that the daughter pay an annuity to the lady's brother (the plaintiff). The daughter failed to pay. The Court held that the plaintiff could enforce the promise even though the consideration (the property) moved from the old lady (a third party) and not from the plaintiff. Under Indian law, consideration may move from the promisee or any other person.

6. Durga Prasad v. Baldeo (1880) - Allahabad HC

The plaintiff built shops at the desire of the Collector. The defendant, who occupied one of the shops, promised a commission on sales. The Court held the defendant's promise was without consideration as the construction was not done at the defendant's desire. Consideration must move at the desire of the promisor.

7. Hadley v. Baxendale (1854) - English, codified in Section 73

The plaintiff's mill shaft broke. The carrier (defendant) delayed delivery of the replacement shaft, causing the mill to remain idle. The Court held that damages for breach are limited to those that arise naturally from the breach or those that were in the contemplation of the parties at the time of contracting. Since the carrier did not know the mill would remain idle, lost profits were not recoverable.

8. Fateh Chand v. Balkishan Das (1963) - Supreme Court

The Supreme Court held that under Section 74, when a sum is named in the contract as the amount to be paid in case of breach, the court must award only "reasonable compensation" not exceeding the named amount. The entire stipulated sum need not be forfeited; the court must assess actual or likely damage.

9. Satyabrata Ghose v. Mugneeram Bangur (1954) - Supreme Court

The Court discussed the doctrine of frustration under Indian law. The defendant agreed to sell a plot of land that was subsequently requisitioned by the government during wartime. The Court held that temporary requisition did not frustrate the contract permanently, and the obligation to convey the land survived the requisition.

10. Central Inland Water Transport v. Brojo Nath Ganguly (1986) - Supreme Court

The Court held that in contracts between parties with unequal bargaining power, unreasonable and unfair clauses are void under Section 23 as being opposed to public policy. An employment contract clause allowing termination with three months' notice without reason was struck down.

11. Motilal Padampat Sugar Mills v. State of UP (1979) - Supreme Court

The Court recognised the doctrine of promissory estoppel against the government. When the government made a representation that exemption from sales tax would be granted to encourage industries, and the plaintiff acted upon it by setting up a factory, the government was estopped from withdrawing the promise.

12. Percept D'Mark (India) v. Zaheer Khan (2006) - Supreme Court

The Court held that a restrictive covenant in an employment contract that operates during the term of employment is valid, but one that operates after termination of employment is void under Section 27 as being in restraint of trade.

13. Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas (1966) - Supreme Court

The Court held that a contract can be concluded by telephone, and the contract is made at the place where the acceptance is heard by the offeror. This case clarified the application of the postal rule to instantaneous communication.

14. MC Chacko v. State Bank of Travancore (1970) - Supreme Court

A surety's liability under a continuing guarantee was discussed. The Court held that the surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise, and the creditor is not obliged to proceed against the principal debtor before proceeding against the surety.