UNIT 1

Law of Contract: Meaning and essential of a valid contract

Law of contracts in India defines Contract as an agreement enforceable by law which offers
personal rights, and imposes personal obligations, which the law protects and enforces against the
parties to the agreement. The general law of contract is based on the conception, which the parties
have, by an agreement, created legal rights and obligations, which are purely personal in their
nature and are only enforceable by action against the party in default.
Section 2(h) of the Indian Contract Act, 1872[2] defines a contract as “An agreement enforceable
by law”. The word ‘agreement’ has been defined in Section 2(e) of the Act as ‘every promise and
every set of promises, forming consideration for each other’
Contract law is the body of law that relates to making and enforcing agreements. A contract is an
agreement that a party can turn to a court to enforce. Contract law is the area of law that governs
making contracts, carrying them out and fashioning a fair remedy when there’s a breach.
Anyone who conducts business uses contract law. Both companies and consumers use contracts
when they buy and sell goods, when they license products or activities, for employment
agreements, for insurance agreements and more. Contracts make these transactions happen
smoothly and without any misunderstandings. They allow parties to conduct their affairs
confidently. Contracts help make sure that the parties to a transaction are clear on its terms.
Essentials of Valid Contract:
1. Offers and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent
6. Lawful Objects
7. Writting and Registration
8. Certainity
9. Possibility of Performance
10. Not Expressly Declared Void
An agreement becomes enforceable by law when it fulfils essential conditions. These conditions
may be called the essentials of a valid contract, which are as follows:
1. Offers and Acceptance
For an agreement there must be a lawful offer by one and lawful acceptance of that offer from the
other party. The term lawful means that the offer and acceptance must satisfy the requirements of
Contract Act. The offer must be made with the intention of creating legal relations otherwise, there
will be no agreement.
Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B accepts this offer,
there is an acceptance.
2. Legal Relationship
The parties to an agreement must create legal relationship. It arises when parties know that if one
for the failure of a contract. Agreements of a social or domestic nature do not create legal relations
and as such cannot give rise to a contract. It is presumed in commercial agreements that parties
intend to create legal relations.
Example:
1. A father promises to pay his son Rs.500 every month as pocket money. Later, he refuses
to pay. The son cannot recover as it is a social agreement and does not create legal relations.
2. A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price, there is
a contract as it creates legal-relationship between them.
3. A husband promised to pay his wife a household allowance of 30 pounds every month.
Later, the parties separated and the husband failed to pay. The wife used for allowance.
Held that the wife was not entitled for the allowance as the agreement was social and did
not create any legal obligations.
3. Lawful Consideration
The third essential of a valid contract is the presence of consideration. Consideration is “something
in return.” It may be some benefit to the party. Consideration has been defined as the price paid by
one party for the promise of the other. An agreement is enforceable only when both the parties get
something and give something. The something given or obtained is the price of the promise and is
called consideration.
Example:
1. A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s promise to sell
the house, and A’s promise to sell the house is the consideration for B’s promise to pay
Rs.10 Lac. These are lawful considerations.
2. A promise to obtain for B employment in the public service, and B promise to pay 10,000
rupees to A. the agreement is void, as the consideration for it is unlawful.
4. Capacity of Parties:
An agreement is enforceable only if it is entered into by parties who possess contractual capacity.
It means that the parities to an agreement must be competent to contract. According to Section 11,
in order to be competent to contract the parties must be of the age of majority and of sound mind
and must not be disqualified from contracting by any law to which they are subject. A contract by
a person of unsound mind is void ab-initio (from the beginning).
If one of the parties to the agreement suffers from minority, madness, drunkenness etc., the
agreement is not enforceable at law, except in some cases.
Example:
 1. M, a person of unsound mind, enters into an agreement with S to sell his house for Rs.2
lac. It is not a valid contract because M is not competent to contract.
2. A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid contract because A is
competent to contract.
5. Free Consent:
It is another essential of a valid contract. Consent means that the parties must have agreed upon
the same thing in the same sense. For a valid contract it is necessary that the consent of parties to
the contact must be free.
Example:
1. A compels B to enter into a contract on the point of pistol. It is not a valid contract as the
consent of B is not free.
6. Lawful Objects:
It is also necessary that agreement should be made for a lawful object. The object for which the
agreement has been entered into must not be fraudulent, illegal, immoral, or opposed to public
policy or must not imply injury to the person or property of another. Every agreement of which
the object or consideration is unlawful is illegal and the therefore void.
Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as its object is unlawful.
7. Writing and Registration:
According to Contract Act, a contract may be oral or in writing. Although in practice, it is always
in the interest of the parties that the contract should be made in writing so that it may be convenient
to prove in the court. However, a verbal contract if proved in the court will not be considered
invalid merely on the ground that it not in writing. It is essential for the validity of a contact that it
must be in writing signed and attested by witness and registered if so required by the law.
Example:
1. A Verbally promises to sell his book to y for Rs.200 it is a valid contract because the law
does not require it to be in writing.
2. A verbally promises to sell his house to B it is not a valid contract because the law requires
that the contract of immovable property must be in writing.
8. Certainity:
According to Section 29 of the Contract Act, “Agreements the meaning of which are not certain
or capable of being made certain are void.” In order to give rise to a valid contract the terms of the
agreement, must not be vague or uncertain. For a valid contract, the terms and conditions of an
agreement must be clear and certain.
Example:
 1. A promised to sell 20 books to B. It is not clear which books A has promised to sell. The
agreement is void because the terms are not clear.
2. A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The agreement
is void because of it uncertainty.
O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over two
years. Held there was no contract as the terms were not certain about rate of interest and mode of
payment.
9. Possibility of Performance:
The valid contract must be capable of performance section 56 lays down that. “An agreement to
do an act impossible in itself is void.” If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.
Example:
1. A agrees with B to discover treasure by magic, the agreement is not enforceable.
2. A agrees with B to put life into B’s dead brother. The agreement is void as it is impossible
of performance.
10. Not Expressly Declared Void:
An agreement must not be one of those, which have been expressly declared to be void by the Act.
Section 24-30 explains certain types of agreement, which have been expressly declared to be void.
An agreement in restraint of trade and an agreement by way of wager have been expressly declared
void.
Example:
A promise to close his business against the promise of B to pay him Rs.2 lac is a void agreement
because it is restraint of trade.

Contracts Agreements
With their use of “herein” and “heretofore,” it often seems as if contracts are written to confuse
anyone who isn’t a lawyer or judge. Whatever the reason, contracts are among the biggest
offenders for using jargon. So, since contracts are used in most of the important areas of life, it’s
helpful to understand what they are, when you use them and the different types of contracts you
might encounter.
A contract is a legal agreement between two or more parties that specifies what each party is
agreeing to do or not do. The parties could be individuals or entities of some sort, such as
businesses, the government or a group of individuals, like the members of a class action suit. These
are found in those long columns next to the magazine article you’re reading, that describe a lawsuit
you can be a part of if you bought something years ago and can rustle up the receipt for it.
Although courts prefer that contracts are written, oral contracts are also legally binding, which
means they will be upheld if taken to court. Of course, if a contract is oral, it must be proven to the
satisfaction of the court that what is claimed was actually what was said. This can be tough to
prove, which is why it’s much better to have a written contract.
There are many instances where you need a business contract. Any time goods are bought or sold,
or you agree to provide services or products, or to buy services or products, you need a contract.
Any time you are promising to do anything in business, a contract is a good idea.
However, it’s understood that the contract must offer something of value. The purpose of a contract
is to protect one or both involved parties. You don’t need protection, though, if something has little
or no value. If you borrow a co-worker’s stash of sales brochures, she’s not going to ask you to
sign a contract stating that you promise to return them by end of day. (If she does, you probably
shouldn’t borrow from her again.)
Buying or selling company vehicles, securing health insurance for the staff and hiring a trainer to
present a workshop are just a few examples where you’d need a contract. All of these situations
involve valuable considerations.

Types of Contracts
There are many different kinds of contracts, including those that are specific to certain industries,
such as engineering contracts and construction contracts. Some overlap industries, but some do
not. Listing all of them would not be possible and would likely result in omitting some accidentally.
Most contracts, however, can be grouped into categories of types:
1. Unilateral or Bilateral: Whether a contract is unilateral or bilateral depends on who is doing
the promising. Unilateral contracts are one-sided, where one party is making all the promises.
(This is easy to remember because the prefix “uni” means one, as in unicycle versus bicycle.)
If a man offers a reward for the person who finds his lost wallet, that’s a unilateral contract.
He has made the promise to pay the reward, but someone has to take him up on it by finding
his wallet. If someone does produce the wallet, that finder is accepting the contract, and the
wallet owner must pay the reward. The finder never promised to do anything.
In a bilateral contract, both parties make promises. Real estate transactions are examples of
bilateral contracts. The sellers offer to sell their house at a specific price and specify what else goes
with the sale, such as appliances and window coverings. The buyers make a counteroffer by
specifying that they will agree to buy the house at the sale price only if the sellers install new
flooring in the dining room and kitchen, repair the nonworking stove burners and repair or replace
the sump pump in the basement. The potential buyers submit a deposit check with their contract
so the house will be held for them and not sold to anyone else. As long as the sellers do all the
repairs, the buyers must buy the house or lose their deposit.
2. Valid or Voidable: A contract is considered valid if it meets all the qualities necessary to be a
legal contract. If it’s missing even one element, it’s considered voidable.
3. Express or Implied: Contracts are express when they clearly express the contract’s details and
promises. Usually, these are expressed in writing, but an oral contract can be express, too, if
both parties agree to what was said or it can be proven what was said, and it was clearly stated.
Implied contracts require some reading between the lines. For example, if you leave a ring with a
jeweler to be resized, it’s reasonable to assume it will be returned to you in the same condition as
it was in when you left it, only resized. Though the contract you sign to resize the ring may not
mention that the ring contains three stones, it’s implied that the ring will still contain the three
stones when you get it back. If a stone is missing, you can use the implied contract to get the
jeweler to pay for your lost stone.
4. Executed or Executory: This one is straightforward. An executed contract is one that’s been
completed. If you take your car to a tire dealer to have new tires installed, while the tires are
being installed and you’re watching the news on the waiting room TV, the contract is
executory. In other words, it’s still being executed. But when they bring your car around, you
see the new tires on the vehicle, pay for the tires and installation and drive off, that contract
has been executed. It’s done. Over. In the past.
5. Contracts Under Seal: Contracts used to be enforceable only if they contained a seal showing
they were official. The seal often took the place of payment being offered since with the seal
the parties were agreeing to the terms including any payment involved. This became
impractical as the world became faster paced and crowded with all kinds of businesses and
individuals entering into contracts. Today, the consideration offered is usually substituted for
a seal in showing the validity of a contract. If you do encounter a contract under seal, it will
probably not be considered valid.
6. Exceptions to minor contracts: Usually, if a party enters into a contract with a minor, the
minor can get out of it or void the contract by saying he didn’t understand what he was signing.
There are a few instances, however, where minors cannot have a contract voided. These
include:
• Taxes: Minors often hold jobs, receive payment and owe taxes, which they can’t avoid any
more than adults can. The same goes for any penalties involved.
• Necessities: Usually, a minor can’t void a contract involving necessities like food, clothing,
housing and sometimes vehicles.
• Education: Minors who attend college but aren’t yet 18 can’t refuse to pay tuition unless they
follow the rules and procedures for officially withdrawing from school within the stated
deadlines. When a minor voids a contract, by law he has to give back anything that came with
the contract. He can’t give back an education, though, so he has to pay.
• Professional contracts: When a minor, such as an athlete or model, enters into a contract to
endorse products and receives payment to do so, she can’t void that contract. First, such a
minor likely has a manager or agent, so she can’t claim she didn’t understand what she agreed
to do. Second, if such contracts could be voided at whim, the minor could do so any time
another company offered him a better deal.
Offer and Acceptance
The meaning of offer and acceptance is the basis of a contract. To form a contract, there must be
an offer made by one party which is, in turn, accepted by another party, and then, in most cases
goods and/or services must be exchanged between the two.
Elements to an Offer
In contract law, the party making the offer is called the “offeror.” Put simply, this is the person or
company that has ownership in some form of the goods and/or services being offered.
The other party to the agreement is called the “offeree.” This is the person or company willing to
pay the other party some form of compensation in order to use or acquire ownership of the goods
and/or services. The result of this agreement is a legally binding contract, which is usually, but not
always, finalized through the signatures of both parties.
There are two parts to any offer:
The Expression: This is where the parties articulate in some form an inclination to enter into a
contract and to make that contract legally binding upon the acceptance by both parties. The
expression may take a wide variety of forms, from a personal discussion to a letter that lays out
the basics of the terms.
The Intention: This is a slightly more vague concept, and it is often left up to the courts to
determine whether or not intention was breached by a party. Essentially, intention involves a
presumption by both parties that the agreement will be legally binding and comes down to the
belief that neither party would begin discussions without the intent to live up to their side of the
bargain.
Offers can really cover anything, from a verbal agreement to provide a service, such as
housesitting, to a detailed contract with legal terminology that one may find in an agreement to
transfer real estate. It’s more than a promise, because it must be made with the understanding that
what is being agreed to will be legally binding. It can be for the sale of goods, a pledge to perform
a service, or even a promise not to engage in an activity. The more complex the agreement, the
greater the likelihood will be that each party would engage legal counsel to negotiate the contract.
Elements to Acceptance
Acceptance is the final agreement of both parties to consent to the terms of the offer. While it is
common for the terms of the offer to be negotiated before acceptance, if it can be shown that
through conduct and communications that the parties did in fact intend to agree to the final terms
of the contract, then formal acceptance of an offer is not required for it to be legally binding.
It is also not always necessary that acceptance be in the form of a signature on a piece of paper,
although this is the most commonly accepted agreement between parties. For instance, if a party
performs an act that would not otherwise happen, such as a painting contractor painting a house or
a professional moving company moving furniture from one location to another, it would be
interpreted as acceptance and agreement to the terms of the offer of payment for these services.
Assent Versus Meeting of the Minds
A long held and essential element of whether or not a contract is valid is that a “meeting of the
minds” existed between the parties when they entered into contract. Thus it was a common defense
against breach of contract for a party to argue that they never were of a mind to intend to be bound
by the contract.
However, establishing that a “meeting of the minds” did indeed exist is difficult and is no longer
the sole criteria used by a court to determine a contract’s validity. Factors such as conduct and
assent indicate the intention to enter into the agreement and outweigh the “meeting of the minds”
criteria.
Contracts are the very essence of the way individuals and companies agree to exchange practically
everything that anyone can imagine. If one party owns something and another party wished to use
it, and is willing to pay for that right, a contract is the safest way to make sure both parties are
protected in the case of something going wrong. No matter how minor or major the exchange, it
all starts with an offer being made and that offer being accepted.

Capacity to contract; consent and free consent;

Consideration
Capacity to contract
Capacity to contract means a party has the legal ability to enter into a contract.
Capacity to contract means a party has the legal ability to enter into a contract. Capacity also means
a person has to be competent as defined by law. Someone’s capacity is determined by whether or
not they have reached the age of majority and if they are mentally capable of understanding the
applicable contract terms.
A contract must contain these six elements:
• Offer
• Acceptance
• Consideration
• Capacity
• Intent
• Legality
Who Doesn’t Meet Criteria for Capacity
Some people lack the capacity to enter into a legally binding contract:
• Minors: In general, anyone under 18 years old lacks capacity. If he or she does enter into a
contract before they turn 18, there is usually the option to cancel while he or she is still a minor.
There are some exceptions to this rule, however. Minors are allowed to enter into contracts for
purchasing various necessities like clothing, food, and accommodations. Some states allow
people under 18 to obtain bank accounts, which often carry strict terms and stipulations.
• Mental Incapacitation: If a person is not cognitively able to understand his or her
responsibilities and rights under the agreement, then they lack the mental capacity to form a
contract. Many states define mental capacity as the ability to understand all terms of the
contract, while a handful of others use a motivational test to discern whether someone suffers
from mania or delusions.
• Intoxication: Someone who is under the influence of drugs or alcohol is generally believed to
lack capacity. If someone voluntarily intoxicated themselves, the court may order the party to
uphold the obligation. This is tricky because many courts have also agreed a sober party
shouldn’t take advantage of an intoxicated person.
Contracts made with people who don’t have legal capacity are voidable. The other person has the
right of rescission, the option to void the contract and all related terms and conditions. Courts may
opt to void or rescind a contract if one of the parties lacked legal capacity. If the court voids the
contract, it will attempt to put all parties back in the position they were in before the agreement,
which may involve returning property or money when feasible.
Capacity of Companies
Companies also have to have capacity when entering into an agreement. If they don’t, there can
be serious consequences, particularly regarding guarantees. There are similarities across legal
systems and jurisdictions when it comes to the general rules that govern the legal capacity of
companies. For example, the legal theory that a business has a separate legal personality is
recognized in both civil and common law jurisdictions. This means that as a defined legal person,
a company has the capacity to enter into a contract with other parties and can be held liable for its
actions.
Civil Law Countries
The United States isn’t the only country that recognizes this legal concept. For example, France, a
civil law country, has also adopted this idea. Legal capacity regarding entities was recently
reformed by Ordinance n°2016-131, which went into effect in 2016. Under French Civil Code
Article 1147, a company’s lack of capacity is a grounds for relative nullity, a defense that can be
invoked by the aggrieved party to void the contract. In this case, the aggrieved party would be the
company. Furthermore, Article 1148 allows French companies who lack capacity to contract to
legally enter into contracts that are day-to-day acts which are authorized by usage or legislation.
In Spain, there is a special relationship with church and state. As a result, the church is governed
by elements of a specific concordat: Spanish Civil Code Article 37, which says that companies
enjoy “civil capacity.”
Common Law Countries
In common law countries, a company’s capacity is limited by the company’s memorandum of
association. This document contains the clause that describes the commercial activities the
business is involved in, thereby delineating the company’s capacity.
Under the ultra vires doctrine, a business cannot do anything beyond what is allowed by its
statement of objects. The ultra vires doctrine was initially seen as a necessary measure to protect
a company’s shareholders and creditors. This doctrine gave rise to what’s known as the
constructive notice rule, which states that any third party that entered into a contract with another
company must have been knowledgeable of that business’s objects clause.
Consent and free consent
Free Consent is an essential element for formation of a contract . According to Section 10 of the
Indian Contract Act, 1872, All agreements are contracts, if they are made by the free consent.
Section 13 and Section 14 of the Indian Contract Act, 1872 defines ‘Consent’ and ‘Free Consent’
respectively.
Meaning of Consent
The term Consent means “agreed to “or giving acceptance. The parties to the Contract must freely
and mutually agree upon the terms of the contract in the same sense and at the same time. There
cannot be any agreement unless both the parties it to agree to it. If there is no Consent, Agreement
will be void ab initio for want of consent
Consent
Section 13 of the Indian Contract Act 1872 defines Consent as “Two or more person are said to
consent when they agree upon the same thing in the same sense.”
Free Consent
According to Section 10 of the Indian Contract Act, 1872, to constitute a valid contract, parties
should enter into the contract with their free Consent. Consent is said to be free when it is not
obtained by coercion, or undue influence or fraud or misrepresentation or mistake.
Section 14 of the said act defines ‘Free Consent’ as Consent is said to be free, when it is not caused
by:

Law of Contract: Meaning and essential of a valid contract

Law of contracts in India defines Contract as an agreement enforceable by law which offers
personal rights, and imposes personal obligations, which the law protects and enforces against the
parties to the agreement. The general law of contract is based on the conception, which the parties
have, by an agreement, created legal rights and obligations, which are purely personal in their
nature and are only enforceable by action against the party in default.
Section 2(h) of the Indian Contract Act, 1872[2] defines a contract as “An agreement enforceable
by law”. The word ‘agreement’ has been defined in Section 2(e) of the Act as ‘every promise and
every set of promises, forming consideration for each other’
Contract law is the body of law that relates to making and enforcing agreements. A contract is an
agreement that a party can turn to a court to enforce. Contract law is the area of law that governs
making contracts, carrying them out and fashioning a fair remedy when there’s a breach.
Anyone who conducts business uses contract law. Both companies and consumers use contracts
when they buy and sell goods, when they license products or activities, for employment
agreements, for insurance agreements and more. Contracts make these transactions happen
smoothly and without any misunderstandings. They allow parties to conduct their affairs
confidently. Contracts help make sure that the parties to a transaction are clear on its terms.
Essentials of Valid Contract:
1. Offers and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent
6. Lawful Objects
7. Writting and Registration
8. Certainity
9. Possibility of Performance
10. Not Expressly Declared Void
An agreement becomes enforceable by law when it fulfils essential conditions. These conditions
may be called the essentials of a valid contract, which are as follows:
1. Offers and Acceptance
For an agreement there must be a lawful offer by one and lawful acceptance of that offer from the
other party. The term lawful means that the offer and acceptance must satisfy the requirements of
Contract Act. The offer must be made with the intention of creating legal relations otherwise, there
will be no agreement.
Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B accepts this offer,
there is an acceptance.
2. Legal Relationship
The parties to an agreement must create legal relationship. It arises when parties know that if one
for the failure of a contract. Agreements of a social or domestic nature do not create legal relations
and as such cannot give rise to a contract. It is presumed in commercial agreements that parties
intend to create legal relations.
Example:
1. A father promises to pay his son Rs.500 every month as pocket money. Later, he refuses
to pay. The son cannot recover as it is a social agreement and does not create legal relations.
 2. A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price, there is
a contract as it creates legal-relationship between them.
3. A husband promised to pay his wife a household allowance of 30 pounds every month.
Later, the parties separated and the husband failed to pay. The wife used for allowance.
Held that the wife was not entitled for the allowance as the agreement was social and did
not create any legal obligations.
3. Lawful Consideration
The third essential of a valid contract is the presence of consideration. Consideration is “something
in return.” It may be some benefit to the party. Consideration has been defined as the price paid by
one party for the promise of the other. An agreement is enforceable only when both the parties get
something and give something. The something given or obtained is the price of the promise and is
called consideration.
Example:
1. A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s promise to sell
the house, and A’s promise to sell the house is the consideration for B’s promise to pay
Rs.10 Lac. These are lawful considerations.
2. A promise to obtain for B employment in the public service, and B promise to pay 10,000
rupees to A. the agreement is void, as the consideration for it is unlawful.
4. Capacity of Parties:
An agreement is enforceable only if it is entered into by parties who possess contractual capacity.
It means that the parities to an agreement must be competent to contract. According to Section 11,
in order to be competent to contract the parties must be of the age of majority and of sound mind
and must not be disqualified from contracting by any law to which they are subject. A contract by
a person of unsound mind is void ab-initio (from the beginning).
If one of the parties to the agreement suffers from minority, madness, drunkenness etc., the
agreement is not enforceable at law, except in some cases.
Example:
1. M, a person of unsound mind, enters into an agreement with S to sell his house for Rs.2
lac. It is not a valid contract because M is not competent to contract.
2. A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid contract because A is
competent to contract.
5. Free Consent:
It is another essential of a valid contract. Consent means that the parties must have agreed upon
the same thing in the same sense. For a valid contract it is necessary that the consent of parties to
the contact must be free.
Example:
1. A compels B to enter into a contract on the point of pistol. It is not a valid contract as the
consent of B is not free.
6. Lawful Objects:
It is also necessary that agreement should be made for a lawful object. The object for which the
agreement has been entered into must not be fraudulent, illegal, immoral, or opposed to public
policy or must not imply injury to the person or property of another. Every agreement of which
the object or consideration is unlawful is illegal and the therefore void.
Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as its object is unlawful.
7. Writing and Registration:
According to Contract Act, a contract may be oral or in writing. Although in practice, it is always
in the interest of the parties that the contract should be made in writing so that it may be convenient
to prove in the court. However, a verbal contract if proved in the court will not be considered
invalid merely on the ground that it not in writing. It is essential for the validity of a contact that it
must be in writing signed and attested by witness and registered if so required by the law.
Example:
1. A Verbally promises to sell his book to y for Rs.200 it is a valid contract because the law
does not require it to be in writing.
2. A verbally promises to sell his house to B it is not a valid contract because the law requires
that the contract of immovable property must be in writing.
8. Certainity:
According to Section 29 of the Contract Act, “Agreements the meaning of which are not certain
or capable of being made certain are void.” In order to give rise to a valid contract the terms of the
agreement, must not be vague or uncertain. For a valid contract, the terms and conditions of an
agreement must be clear and certain.
Example:
1. A promised to sell 20 books to B. It is not clear which books A has promised to sell. The
agreement is void because the terms are not clear.
2. A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The agreement
is void because of it uncertainty.
3. O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over
two years. Held there was no contract as the terms were not certain about rate of interest
and mode of payment.
9. Possibility of Performance:
The valid contract must be capable of performance section 56 lays down that. “An agreement to
do an act impossible in itself is void.” If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.
Example:
1. A agrees with B to discover treasure by magic, the agreement is not enforceable.
 2. A agrees with B to put life into B’s dead brother. The agreement is void as it is impossible
of performance.
10. Not Expressly Declared Void:
An agreement must not be one of those, which have been expressly declared to be void by the Act.
Section 24-30 explains certain types of agreement, which have been expressly declared to be void.
An agreement in restraint of trade and an agreement by way of wager have been expressly declared
void.
Example:
A promise to close his business against the promise of B to pay him Rs.2 lac is a void agreement
because it is restraint of trade.

Performance of Contract
A contract places a legal obligation upon the contracting parties to perform their mutual promises,
and it carries on until the discharge or termination of the contract. The most natural and usual mode
of discharging a contract is to perform it. A person who performs a contract in accordance with its
terms is discharged from any further obligations. As a rule, such performance entitles him to
receive the other party’s performance.
Exact and complete performance by both the parties puts an end to the contract. In expecting exact
performance, the courts mean that, performance must match contractual obligations. In
requiring a contract to be complete, the law is merely saying that any work undertaken must be
carried out to the end of the obligations.
A contract should be performed at the time specified and at the place agreed upon. When this
has been accomplished, the parties are discharged automatically and the contract is discharged
eventually. There are, however, many other ways in which a discharge may be brought about. For
example, it may result from an excuse for non-performance. In certain cases attempted
performance may also operate as a substitute for actual performance, and can result in complete
discharge of the contract.
Performance of Contract?
The term “Performance of contract” means that both, the promisor, and the promisee have
fulfilled their respective obligations, which the contract placed upon them. For instance, A visits a
stationery shop to buy a calculator. The shopkeeper delivers the calculator and A pays the price.
The contract is said to have been discharged by mutual performance.
Section 27 of Indian contract Act says that
The parties to a contract must either perform, or offer to perform, their respective promises, unless
such performance is dispensed with or excused under the provisions of this Act, or any other law.
Promises bind the representatives of the promisor in case of the death of the latter before
performance, unless a contrary intention appears in the contract.
Thus, it is the primary duty of each contracting party to either perform or offer to perform its
promise. For performance to be effective, the courts expect it to be exact and complete, i.e., the
same must match the contractual obligations. However, where under the provisions of the Contract
Act or any other law, the performance can be dispensed with or excused, a party is absolved from
such a responsibility.
Example
A promises to deliver goods to B on a certain day on payment of Rs 1,000. Aexpires before the
contracted date. A‘s representatives are bound to deliver the goods to B, and B is bound to pay Rs
1,000 to A‘s representatives.
Types of Performance
Performance, as an action of the performing may be actual or attempted.
Actual Performance
When a promisor to a contract has fulfilled his obligation in accordance with the terms of the
contract, the promise is said to have been actually performed. Actual performance gives a
discharge to the contract and the liability of the promisor ceases to exist. For example, A agrees to
deliver10 bags of cement at B’s factory and B promises to pay the price on delivery. A delivers
the cement on the due date and B makes the payment. This is actual performance.
Actual performance can further be subdivided into substantial performance, and partial
Performance
Substantial Performance
This is where the work agreed upon is almost finished. The court then orders that the money must
be paid, but deducts the amount needed to correct minor existing defect. Substantial performance
is applicable only if the contract is not an entire contract and is severable. The rationale behind
creating the doctrine of substantial performance is to avoid the possibility of one party evading his
liabilities by claiming that the contract has not been completely performed. However, what is
deemed to be substantial performance is a question of fact to be decided in both the case. It will
largely depend on what remains undone and its value in comparison to the contract as a whole.
Partial Performance
This is where one of the parties has performed the contract, but not completely, and the other side
has shown willingness to accept the part performed. Partial performance may occur where there is
shortfall on delivery of goods or where a service is not fully carried out.
There is a thin line of difference between substantial and partial performance. The two following
points would help in distinguishing the two types of performance.
Partial performance must be accepted by the other party. In other words, the party who is at
the receiving end of the partial performance has a genuine choice whether to accept or reject.
Substantial performance, on the other hand, is legally enforceable against the other party.
Payment is made on a different basis from that for substantial performance. It is made on
quantum meruit, which literally means as much as is deserved. So, for example, if half of the work
has been completed, half of the negotiated money would be payable. In case of substantial
performance, the party that has performed can recover the amount appropriate to what has been
done under the contract, provided that the contract is not an entire contract. The price is thus, often
payable in such circumstances, and the sum deducted represents the cost of repairing defective
workmanship.
Attempted Performance
When the performance has become due, it is sometimes sufficient if the promisor offers to perform
his obligation under the contract. This offer is known as attempted performance or more commonly
as tender. Thus, tender is an offer of performance, which of course, complies with the terms of the
contract. If goods are tendered by the seller but refused by the buyer, the seller is discharged from
further liability, given that the goods are in accordance with the contract as to quantity and quality,
and he may sue the buyer for.breach of contract if he so desires. The rationale being that when a
person offers to perform, he is ready, willing and capable to perform. Accordingly, a tender of
performance may operate as a substitute for actual performance, and can effect a complete
discharge.
In this regard, Section 38 of Indian Contract Act says:
‘Where a promisor has made an offer of performance to the promisee, and the offer has not been
accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights
under the contract. For example, A contracts to deliver to B, 100 tons of basmati rice at his
warehouse, on 6 December 2015. Atakes the goods to B‘s place on the due date during business
hours, but B, without assigning any good reason, refuses to take the delivery. Here, A has
performed what he was required to perform under the contract. It is a case of attempted
performance and A is not responsible for non-performance of B, nor does he thereby lose his rights
under the contract.’
Definition of Delivery
According to Section 2 (2) of the Sale of Goods Act, 1930, delivery means voluntary transfer of
possession of goods from one person to another. Hence, if a person takes possession of goods by
unfair means, then there is no delivery of goods. Having understood delivery, let’s look at the law
on sales
Law on Sales
1) The Duty of the Buyer and Seller (Section 31)
It is the duty of the seller to deliver the goods and the buyer to pay for them and accept them, as
per the terms of the contract and the law on sales.
2) Concurrency of Payment and Delivery (Section 32)
The delivery of goods and payment of the price are concurrent conditions as per the law on sales
unless the parties agree otherwise. So, the seller has to be willing to give possession of the goods
to the buyer in exchange for the price. On the other hand, the buyer has to be ready to pay the price
in exchange for possession of the goods.
Rules Pertaining to the Delivery of Goods
The Sale of Goods Act, 1930 prescribes the following rules regarding delivery of goods:
a. Delivery (Section 33)
The delivery of goods can be made either by putting the goods in the possession of the buyer or
any person authorized by him to hold them on his behalf or by doing anything else that the parties
agree to.
b. Effect of part-delivery (Section 34)
If a part-delivery of the goods is made in progress of the delivery of the whole, then it has the same
effect for the purpose of passing the property in such goods as the delivery of the whole. However,
a part-delivery with an intention of severing it from the whole does not operate as a delivery of the
remainder.
c. Buyer to apply for delivery (Section 35)
A seller is not bound to deliver the goods until the buyer applies for delivery unless the parties
have agreed to other terms in the contract.
d. Place of delivery [Section 36 (1)]
When a sale contract is made, the parties might agree to certain terms for delivery, express or
implied. Depending on the agreement, the buyer might take possession of the goods from the seller
or the seller might send them to the buyer.
If no such terms are specified in the contract, then as per law on sales
• The goods sold are delivered at the place at which they are at the time of the sale
• The goods to be sold are delivered at the place at which they are at the time of the agreement
to sell. However, if the goods are not in existence at such time, then they are delivered to the
place where they are manufactured or produced.
e. Time of Delivery [Section 36 (2)]
Consider a contract of sale where the seller agrees to send the goods to the buyer, but not time of
delivery is specified. In such cases, the seller is expected to deliver the goods within a reasonable
time.
f. Goods in possession of a third party [Section 36 (3)]
If at the time of sale, the goods are in possession of a third party. Then there is no delivery unless
the third party acknowledges to the buyer that the goods are being held on his behalf. It is important
to note that nothing in this section shall affect the operation of the issue or transfer of any document
of title to the goods.
g. Time for tender of delivery [Section 36 (4)]
It is important that the demand or tender of delivery is made at a reasonable hour. If not, then it is
rendered ineffectual. The reasonable hour will depend on the case.
h. Expenses for delivery [Section 36 (5)]
The seller will bear all expenses pertaining to putting the goods in a deliverable state unless the
parties agree to some other terms in the contract.
i. Delivery of wrong quantity (Section 37)
• Sub-section 1 – If the seller delivers a lesser quantity of goods as compared to the contracted
quantity, then the buyer may reject the delivery. If he accepts it, then he shall pay for them at
the contracted rate.
• Sub-section 2 – If the seller delivers a larger quantity of goods as compared to the contracted
quantity, then the buyer may accept the quantity included in the contract and reject the rest.
The buyer can also reject the entire delivery. If he wants to accept the increased quantity, then
he needs to pay at the contract rate.
• Sub-section 3 – If the seller delivers a mix of goods where some part of the goods are
mentioned in the contract and some are not, then the buyer may accept the goods which are in
accordance with the contract and reject the rest. He may also reject the entire delivery.
• Sub-section 4 – The provisions of this section are subject to any usage of trade, special
agreement or course of dealing between the parties.
j. Installment deliveries (Section 38)
The buyer does not have to accept delivery in installments unless he has agreed to do so in the
contract. If such an agreement exists, then the parties are required to determine the rights and
liabilities and payments themselves.
k. Delivery to carrier [Section 36 (1)]
The delivery of goods to the carrier for transmission to the buyer is prima facie deemed to be
‘delivery to the buyer’ unless contrary terms exist in the contract.
l. Deterioration during transit (Section 40)
If the goods are to be delivered at a distant place, then the liability of deterioration incidental to
the course of the transit lies with the buyer even though the seller agrees to deliver at his own risk.
m. Buyers right to examine the goods (Section 41)
If the buyer did not get a chance to examine the goods, then he is entitled to a reasonable
opportunity of examining them. The buyer has the right to ascertain that the goods delivered to
him are in conformity with the contract. The seller is bound to honor the buyer’s request for a
reasonable opportunity of examining the goods unless the contrary is specified in the contract.
Acceptance of Delivery of Goods (Section 42)
A buyer is deemed to have accepted the delivery of goods when:
• He informs the seller that he has accepted the goods; or
• Does something to the goods which is inconsistent with the ownership of the seller; or
• Retains the goods beyond a reasonable time, without informing the seller that he has rejected
them.
Return of Rejected Goods (Section 43)
If a buyer, within his right, refuses to accept the delivery of goods, then he is not bound to return
the rejected goods to the seller. He needs to inform the seller of his refusal though. This is true
unless the parties agree to other terms in the contract.
Refusing Delivery of Goods (Section 44)
If the seller is willing to deliver the goods and requests the buyer to take delivery, but the buyer
fails to do so within a reasonable time after receiving the request, then he is liable to the seller for
any loss occasioned by his refusal to take delivery. He is also liable to pay a reasonable charge for
the care and custody of goods.

Termination of Contract
Breach of Contract:

Contract is made between the parties who are intended to bind together in a legal obligation i.e.to
serve the interest of both the parties. The parties, in order to govern themselves and to safeguard
their interest make their own terms and conditions. And when such terms and conditions are
accepted by both the parties, there is an enactment of the contract i.e. the liability is imposed on
the party to the contract and to function in accordance with the terms and conditions of the contract.
Though many a times, the contracting parties work according to the terms and conditions of the
other party, there are instances when one party back steps, thus leading to the loss to other party.
This is referred as repudiation. According to the section 39 of the Indian contract Act, “Any
intimation whether by words or by conduct that the party declines to continue with the contract is
repudiation, if the result is likely to deprive the innocent party of substantial the benefit of the
contract”
Thus, repudiation can occur when the either party refuses to perform his part, or makes it
impossible for him to perform or even fails to perform his part of contract in each of the cases in
such a manner as to show an intention not to fulfill his part of the contract.
Breach of contract is defined is a legal cause of action in which a binding agreement or bargained
for exchange is not honored by one or more parties to the contract by non-performance or
interference with the other party’s performance. It the party does not fulfill his contractual promise,
or has given information to the other party that he will not perform his duty as mentioned in the
contract or if by his action and conduct he seems to be unable to perform the contract, he is said to
be breach of contract.
Thus when a party having a duty to perform a contract fails to do that, or does an act whereby the
performance of the contract by him becomes impossible, or he refuses to perform the contract,
there is said to be a breach of contract on his part. On the breach of contract by the one party, the
other party is discharged of his obligations to perform his part of the obligations.
Breach of a contract does not discharge the contract, thereby automatically termination the
obligation of the innocent party. It gives an opinion to the innocent party to regard itself as
discharged. The innocent party rescinds the contract, the primary obligation of both the parties is
over, but the defaulting parties become liable for payment of compensation for the breach. The
innocent party may also waive the defective performance and elect to accept damages instead of
ending the contract.
The breach of contract may be either: (i) actual, i.e. non-performance of the contract on the due
date of performance, or (ii) anticipatory, i.e. before the due date of the performance has come.
Thus, when the party to the contract refuses to do an act or does an act at the time of the
performance of the contract then it is said to be the actual breach of the contract, but when the
party to the contract refuses to do an act or does an act before the time of performance by which
the performance of the contract is not possible, the such breach is known as the anticipatory breach
of contract.
Fundamental Breach of Contract
In today’s globalized world, thousands of companies engage in business which involves millions
of consumers. Thus, it would be difficult for these companies to draw up separate contract with
every individual, they came out with Standard Form Of Contract, whereby a standard form with a
large number of terms and conditions are there restricting the liability of the party to the contract.
The individuals can hardly bargains with the massive organizations and therefore the only option
available to them is either to accept it or reject it.
The doctrine of “Fundamental Breach” in the Law of Contract has developed mainly in the areas
of sale (and hire-purchase), bailment and carriage.
RELEVANT FACTORS IN DETERMINING THE FUNDAMENTAL BREACH
According to the statement of the unofficial Secretariat Commentary on the 1978 Draft
Convention,
12 scholars from different legal systems debated on standards for determining whether a breach is
fundamental. A consensus was reached that the determination must be made in the light of the
circumstances of each case. There is no such agreement, however there are some relevant factors,
as generated by scholars and practitioner, in determining whether an injury is substantial enough
to amount to fundamental breach which are roughly categorized under the following headings: a)
nature of the contractual liability; b)gravity of the circumstances of breach; c) remedy-oriented
approach; d) (in)ability of performance; e) (un)willingness to perform; f) lack of reliance on the
other’s party’s future performance; g) offer to cure; and h)possible cure.
1. Nature of the Contractual Obligation: the nature of the contractual obligations is one
factor in determination of fundamental breach. Where the parties have expressly or
implicitly agree that in the case of a breach by one party, the other party may terminate the
contract, strict compliance with the contract is essential and any deviation from the
obligation is to be regarded as a fundamental breach. Absent such an express provision, the
duty of the strict compliance may also be inferred from the language of the contract, the
surrounding circumstances, custom usage or a course of dealing between the parties. The
court often looks at the nature of the contractual obligation in considering whether strict
performance is the essence of the contract. In the absence of the contract
• Quality of the Goods
• Timely delivery
• Disregard of the Seller’s
Distribution System
2. Gravity of the Consequences of the Breach: Gravity of the consequences of the breach
is another factor in determining fundamental breach. Whether or not the consequences of
the breach actually deprive the party’s to the contract of the expectation under the contract
as
• Contract’s overall Value and the Monetary Loss suffered by the Aggrieved Party
• Frustration of the purpose of the contract; and
• Remedy-oriented approach.
3. (In) ability of the Performance: One of the considerations in the determination of fundamental
breach of contract is party’s (in ) ability to perform at all, that is to say either to deliver the ordered
well or to pay the purchase price and to take delivery. Regardless of whether performance is due
or non-performance is considered a fundamental breach where performance is objectively
impossible, namely where the object of the transaction is unique and has been destroyed.
4. (Un) Willingness of Performance: This is another factor in determining whether fundamental
breach is there or not. For e.g. one party refuses to deliver the goods or taking the goods, it therefore
constitute the fundamental breach. Except in the cases, where the promisor is entitled to refuse the
performance, the breach is not amounted to exist.
5. Lack of Reliance on
The other’s Party Future Performance: – In determining fundamental breach, consideration is also
given due importance. The party’s contention is that whether the breach gives the aggrieved party
reasons to believe that he may not rely on the other party’s future performance. For example, that
even where the contractual terms broken is minor and the consequences of the breach do not
substantially deprive the aggrieved party of his expectation under the contract.
6. Offer to Cure: There is much controversy among the scholars as to whether fundamental breach
should be determined in the light of the offers to cure. Many authors favor the consideration
whether such offer in determining is fundamental breach or not. Their contention is that the breach
is not fundamental as long as the repairs is possible within a reasonable time and without causing
the aggrieved party unreasonable inconvenience or uncertainty of reimbursement by the seller of
expenses advanced by the buyer.

Consequence of Contract terminal (Termination)

The consequences of breach of contract can be very severe, and they often involve expensive
monetary damage.
The consequences of breach of contract can be very severe, and they often involve expensive
monetary damage.
Imagine that a customer hires you to complete a job. Now imagine that you finish the job, but the
customer never pays you for the work. The customer has broken your agreement, and now you
don’t have the money you were promised. This is an example of a breach of contract. Whether you
are the owner of a small business or an individual that offers services, breach of contract is
something that you should expect to occasionally face.
Contracts are used to formalize the relationship between two or more parties. Contracts will
establish several conditions and obligations and can contain a variety of requirements:
• Technical requirements, such as the time needed to complete a construction project.
• Service requirements.
• Reporting or information requirements.
• Legal requirements.
• Financial requirements.
When one party to a contract fails to fulfill a requirement, a breach of contract has occurred. In
small claims court, suits for breach of contract are extremely common. A breach means that the
contract has been broken because the terms have not been fulfilled with no legal excuse.
In some cases, it may not be practical for the person harmed by the breach to force the other party
to fulfill their contractual obligations. Instead, the damaged party may wish to pursue other
consequences.
Breaches can occur when one party fails to perform their duties on time, fails to perform in the
manner detailed in the contract, or does not fulfill their obligations at all. For example, if a
coworker does not complete their required part of a project or if an employee engages in actions
restricted by their contract, a breach has occurred.
There are several legal remedies that courts can choose when a contract has been breached, and
the specific remedy can determine the amount of monetary damages that must be paid. If you
entered into a contract fraudulently, for example, the court may choose to award the plaintiff
monetary damages. However, this is a rare course of action. After being damaged by a breach of
contract, it’s best to contact an attorney to make sure you are pursuing the most beneficial legal
remedy.
Default Events vs. Contract Breaches
When a contract is broken, there are a variety of consequences, including something known as a
default event. Some obligations are essential to the contract, and when one of these obligations is
breached, a default event has occurred. When a default event happens, the contract can be
terminated. Persistent breaches and breaches of essential contract obligations will almost always
result in a default event.
Small Businesses and Breach of Contract
Both individuals and small businesses can be seriously harmed by a breach of contract. In addition
to causing a great deal of frustration, breaches of contract can waste time, effort, and money.
However, not all breaches are the same: some breaches are more serious than others. There are
several ways that a breach of contract can occur, and many breaches will be minor.
A material breach is the most serious form of breach of contract. In these cases, someone has
neglected to uphold their responsibilities as laid out in the contract. When this occurs, the injured
party can pursue damages in a civil suit. When a contractor completes a project but isn’t paid, this
is considered a material breach.
A fundamental breach is another type of breach of contract that has the potential to end in a lawsuit.
The party damaged by a fundamental breach is allowed to immediately end a contract and file a
lawsuit. If, for instance, you have leased an apartment and the landlord moved someone into the
apartment before you, a fundamental breach has occurred.
When it becomes clear that one party will not be able to fulfill their duties within the time required
by the contract, it is considered an anticipatory breach. For example, if you hire someone to paint
your home and they don’t start the job until the day before it is to be completed, then you might
be able to pursue damages because it would be impossible for the project to be completed by the
contractual deadline.

Remedies for Breach of Contract

Where is a right, there is a remedy:
A right would be no value if there were no remedy to enforce that right in the court of law, in the
event of its infringement of breach of contract. A remedy is the means given by law for the
enforcement of a right. When either of the parties breaches the contract, it gives the right to the
other party to sue him for a remedy.
Remedies For Breach of Contract:
When a Contract is broken, the aggrieved party (the party who is not in breach) has one or more
of the following remedies –
(1) Recession of the Contract
(2) Suit for Damages
(3) Suit upon Quantum Meruit
(4) Suit for Specific Performance
(5) Suit for Injunction
(1) Recession

Where there is a breach of contract the aggrieved party may sue treat the contract as rescinded and
refuse further performance. In such case, he is absolved of all his obligations under the contract.
(2) Suit for Damages
The term “damage” is different from the term “damages. Damage means injury and damages
means monetary compensation for the loss suffered by the aggrieved party in a breach of contract.
The object of awarding damages for the breach of a contract is to put the injured party in the same
financial position as if the contract had been performed. For example – in the position in which he
would have been had there been performance and not breach.
(3) Suit upon Quantum Meruit:
The phrase ‘Quantum Meruit’ means “as much as earned”. A right to sue on a quantum meruit
arise where a contract partly performed by one party, has become discharged by the breach of the
contract by the other party. The right is founded on an implied promise by the other party arising
from the acceptance of a benefit by that party.
(4) Suit for Specific Performance:
“Specific performance” means actual carrying out of the promise. In certain cases, the Court may
direct the party in breach of contract for the actual carrying out of the promise, exactly according
to the terms of the contract. This is called specific performance of the contract.
(5) Suit for Injunction:
An Injection is an order of the Court of Justice directing the defendant to do some positive act or
restraining the commission or continuance of some Prohibitory Act (causing injury or loss to the
plaintiff ).