Law of Contract

• Foundation of the Modern Business • Business stands on Promise and Performance • Law of Contract – Rules of Promises, their formation, performance and enforceability. • Contracts also deals with - Sales of Goods, Negotiable Instruments, Insurance, and Insolvency – General Principles of Contract • Precedes - Mercantile Law

• Definition of Contracts • Elements of Contract – Consideration, enforceability, Lawful object, etc… • Doctrine of Unjust enrichment • Indemnity and Guarantee

means right against the whole world. the right of A to have complete possession and enjoyment of land is available not only against B but also the whole world. • Right in Rem . • Example – A owns a plot of land and B is the immediate neighbour.Nature of Law of Contract • Right in Personam . • Example • A is entitled to receive a sum of money form B. .means a right against particular person or persons. This right can only be exercised by A.

124 to 238 – Special types of Contract. Agency etc. . 1872 • Applicable whole over India except the State of Jammu and Kashmir • Came into force on 01 Sept 1872 • Originally has 266 Sections • Presently has 238 Sections – two parts – Sec. 1 to 75 – General Principles of Contract – Sec.The Indian Contract Act. Indemnity & Guarantee. Bailment & Pledge.

by which rights are acquired by one or more to acts or forbearances on the part of the other or others.Contract – Definition • Sir William Anson – A contract is an agreement enforceable at law made between two or more persons. • Halsbury – An agreement between two or more persons which is intended to be enforceable at law and is constituted by the acceptance by one party of an offer made to him by the other party to do or abstain from doing some act. .

2( h) . 2 (e) – Every promise or every set of promises forming the consideration for each other – Two elements – Promise and Consideration • Promise – Sec.Sec.An agreement enforceable by law – Two elements – Agreement and Enforceability of law • Agreement Sec. 2 (b) – a proposal when accepted becomes a promise.Definition • Contract . .

Characteristics of Agreement • Plurality of Persons – Tow or more persons to make an agreement • Consenus-ad-idem – Consenting Minds – Agree on the subject-matter in the same sense .

Types of Agreements Unenforceable A Offer to make Arms B Accepts • Offer Mutually agreed • Agreement Illegal Contract • Unenforceable .

Types of Agreements Enforceable A Offer to print books B Accepts • Offer Mutually agreed • Agreement Valid Contract • Enforceable .

Offer Acceptance Agreement All contracts are agreements but all agreements are not contracts .Agreement An agreement comes into existence when one party makes a proposal or offer and the other accepts it.

It is purely a social agreement if Mr.Example • Mr.Agreement . Mr. . Ram invites Mr. Shyam cannot file a case against Mr. Shyam to a dinner at a Leela Palace Hotel. Shyam accepts the invitation. Ram for not fulfilling the promise. Ram doesn’t arrive for the dinner. Mr. • There was no intention between two parties for creating any legal obligation.

The defendant later asked to remain separated and Mrs. The plaintiff remained in England for medical treatment and the defendant agreed to send her a specific amount of money each month until she could return.Case • Balfour v. Balfour (P) lived in Ceylon and visited England on a vacation. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her husband had agreed to send.Contract . Balfour (D) and Mrs. . Balfour – Mr.

. Both parties must intend that an agreement be legally binding in order to be an enforceable contract.Case • Issues • Must both parties intend that an agreement be legally binding in order to be an enforceable contract? • Under what circumstances will a court decline to enforce an agreement between spouses? • Holding and Rule • Yes.Contract . • The court will not enforce agreements between spouses that involve daily life.

• The court held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be sued upon. • The court held that as a matter of public policy it could not resolve disputes between spouses. .Contract • Agreements between husband and wife over matters that affect their daily lives are not subject to contractual interpretation. even when consideration is present.


Not Expressly Declared Void Offer & Acceptance Intention to Create Relationship Writing and Registration Lawful Consideration Essentials of Contract Possibility of performance Capacity of Parties Certainty Lawful Object Free Consent .

Offer and Acceptance • • • • Lawful Offer by one party Lawful acceptance by another party According to the Rules of Indian Contract Act Proper Communication .

Intention to Create Legal Relationships • If no intention of parties – Not a contract • Social and domestic nature do not contemplate legal relations • Agreement must attach legal consequences and create legal obligations • Example – A promised his wife B for a movie if she sings a song. B cannot initiate a case against A because it lacked the intention to create any legal relations . B sang a song but A did not take her for a movie.

• Consideration is the price for which the promise of another is brought.Consideration • Major Elements of Contract • An agreement without consideration is void • Blackstone – Consideration is recompense given by the party contracting to another. .

Capacity of Parties • Parties must be competent to enter into contract • Sec. 11 – Major according to law • Contract not valid with incompetent persons – Minors – Persons of unsound mind – Persons disqualified by law .

• No influence • Absence of consent – – – – – Coercion Undue influence Fraud Misrepresentation Mistake .Free Consent • Parties must have agreed upon the same thing in the same sense.

Lawful Object • Object should be enforceable by law • Should not be – – – – Fraudulent illegal immoral opposed to public policy .

Certainty • • • • Terms should be precise and certain No Vague terms should be used A promises to sell C 100 Kg of Oil. This is vague as specifications are not clear and what is the type of oil that to be supplied is also mentioned. .

.Possibility of Performance • Capable of Performance • Physically and Legally • A agrees to B to discover treasure by magic. – Not enforceable because cannot be performed.

Writing and Registration
• Oral Contracts are Valid • Special cases – written and registered agreements are only valid • Arbitration Agreements, Transfer of Property, Mortgage etc…

Not expressly declared Void
• Agreement must not be declared void under this Act • Except according to Sections 24-30
– Restraint from marriage – Restraint from trade etc…

Types of Contract

Validity & Enforceability • Valid Contract • Voidable Contract • Void Contract • Unenforceable Contract • Illegal or Unlawful Contract

Creation • Express Contract • Implied Contract • Constructive or Quasi-Contract

Execution • Executed Contract • Executory Contract

Types of Contract Valid and Enforceability • Valid Contract – Enforceable by law • Voidable Contract – At the options of one or more of the parties – not at the option of other party – if right not exercised it’s a valid contract • Void Contract – Useless contract – not enforceable by law • Unenforceable Contract – though a valid contract – became unenforceable because of technical or other reasons • Illegal or Unlawful Contract – agreements prohibited by law .

Types of Contract Creation • Express Contract – Proposal and Acceptance are spoken or written • Implied Contract – Conduct of parties • Quasi or Constructive Contracts – obligations arising not by agreement but because of operation of law .

Types of Contract Execution • Executed Contract – Both parties have performed their part of the contract • Executory Contract – Yet to be performed wholly or partly .

Offer and Acceptance • Proposal or Offer – Sec. – Essentials • Expression of willingness • Made to another person • With a object of gaining the consent of the other person – A person who makes the proposal or offer is called promisor or offeror – A person to whom its made is called offeree – A person accepting the offer is called the promisee or acceptor . he is said to make a proposal. with a view to obtaining the assent of that other to such act or abstinence. 2(a) – When one person signifies to another his willingness to do or abstain from doing anything.

An offer must contemplate giving rise to legal consequences and be capable of creating legal relations 3. An offer must be either words or in conduct • Express Offer – which is expressed in words • Implied Offer – which is inferred from the conduct of a person or the circumstances 2.Rules regarding a Valid Offer 1. X refused to buy second one. its being loose and vague. Y could not enforce the agreement. An invitation to offer is not an offer . 4. Must be certain and loose words not to be used • X purchase a horse from Y and promised to purchase another if the first one proves to be luck.

Offer must be communicated to the Offeree 7.Rules regarding a Valid Offer 5. Cross-offers is not contract . An Offer may be specific or general • Specific Offer – Made to a definite person • General Offer – made to the world at large 6.Offer can be made subject to any terms and conditions 9. the noncompliance of which would amount to acceptance 8. Offer should not contain a term.

Lapse and Revocation of Offer • An offer lapses after a stipulated or reasonable time • Offer lapses by not being accepted in the mode prescribed. • Offer lapse by rejection • Death or insanity of the offeror or offeree • Revocation • Revocation by non-fulfilment of condition precedent to acceptance • Subsequent illegality or destruction of subject matter .

• Expressed Acceptance – made in words spoken or written • Implied Acceptance – by conduct • Can be made only by the person to whom its been made .Acceptance • When the person to whom the proposal is made signifies his assent it is an acceptance of the proposal.

Rules Regarding Valid Acceptance • Acceptance must be given by the person to whom the offer is made • Acceptance must be absolute and unqualified • Acceptance must be in some usual and reasonable manner. before its lapse • Acceptance must succeed the offer • Rejected offer can be accepted only if renewed . unless specified • Communicated by the acceptor • Acceptance must be given with a reasonable time.

Communication of Offer. agreement comes into existence • Sections 4 and 5 of the Contract Act deals with rules regarding acceptance of offer through post and other communication modes . Acceptance and Revocation • When the parties are physically present and negotiate in person.

when it is put in course of transmission to him. so as to be out of the power of the acceptor to withdraw the same – As against the acceptor when it comes to the knowledge of the proposer .Rules of Communication • Communication of Offer – complete when its reaches the offeree • Communication of acceptance – As against the proposer.

when it is put into a course of transmission – As against the person to whom it is made. when the letter is posted. • Communication of Revocation – – As against the person who makes it. as against B when the letter is received by A. when it comes to his knowledge .Rules of Communication • A proposes by letter to the sell the house to B for 10 lakh. B accepts A’s proposal sent by Post. The communication of the acceptance is complete a against A.

CONSIDERATION • Consideration is the price for which the promise of other is brought and the promise thus given for value is enforceable • Sec 2 (d) Indian Contract Act – When at the desire of the promisor – The promisee or any other person – Has done or abstained from doing or does or abstains from doing. or promises to do or abstain from doing – Such act or abstinence or promise is called a consideration for the promise .

• Consideration may be Past.1 Crore to Y and Y agreed to build a House for Z. A cannot demand payment for his services as it is a voluntary act on his part and B never asked his to do so • Consideration must move from the promisee or any other person – X. Here Z is a party to the contract but stranger to consideration and can enforce the contract.Future or Executory Consideration .Consideration and Promise is Simultaneous Future Consideration . Y and Z enter into an agreement under which X pays Rs. Present or Future Past Consideration – consideration for the promise is given before Present Consideration .Essentials of a Valid Consideration • Consideration should move at the desire of the Promisor – A sees B drowning and saves his life.

.Essentials of a Valid Consideration • • • • Consideration need not be adequate Consideration must be real Consideration must be Lawful Consideration must be something which the promisor is not already bound to do.

. and is not disqualified form contracting by any law to which he is subject.Consent of Parties • Competent Persons to contract. and who is of sound mind. 10) • Every person is competent to contract who is of the age of majority according t the law to which he is subject. (Sec.

Void contracts – because their mental faculties are not mature • Beneficial agreements – valid . of Indian Majority Act 1875 – A person under 18 years of age. • Absolutely .Consent of Parties • Minor – Sec 3.

Consent of Parties • Person of Unsound mind • Sec. if at the time when he makes it. he is capable of understanding it and of forming a rational judgement as to its effect upon its interests.12 – A person is said to be of sound mind for the purpose of making a contract. . • Absolutely void and inoperative against him.

Capacity of Parties • • • • • Unqualified persons Alien Enemies Foreign Sovereign and Ambassadors Convict Insolvent .

Capacity of Parties • Free Consent • Sec 13 – Two or more persons are said to consent when they agree upon the same thing in the same sense. • Consent to be free and caused by – Coercion – threatening to commit – voidable contract – Undue influence – (a) one party in a position to dominate the will of the other (b) Uses the position to obtain an unfair advantage over the other – voidable contract .

Capacity of Parties – Free Consent • Misrepresentation – wrongly representing of fact by one party to the other either before or at the time of the contract – with the intention to induce the other to enter into the contract – voidable contract • Fraud – intentionally deceive the other person – voidable contract • Mistake – erroneous belief concerning something .

Legality of Object & Consideration  Object and Consideration of agreement must be lawful  Sec. 23 – kinds of consideration and objects are lawful  Forbidden by Law  Defeat the provisions of Law  Fraudulent  Implies or involves injury to the person or property  Immoral  Opposed to Public Policy .

Void Agreement  Sec. 2. (g) An agreement not enforceable by law is void.  Minor  Unsound person  Unlawful Consideration  Unlawful object  With consideration  Impossible events or Acts  Restraint of marriage  Restraint of Trade  Restraint of Legal Proceedings  Uncertain Meaning  Wager Agreement  Impossible Events  Impossible Acts .

Performance of Contract • A person cannot acquire rights under a contract to which he is not a party • Promisee can demand the performance of Contract – Exception – Legal heirs • Competent person to perform a contract – – – – Promisor Agent of Promisor Legal Representatives Performance by third Person .

in payment of which he is interested  Obligation of person enjoying benefit of non-gratuitous act. or thing delivered by mistake .  Responsibility of finder of goods  Liability of person to whom money is paid.Quasi Contracts  Obligations resembling those created by a contract are imposed by law even though the parties have not entered into contract  Claims for necessaries supplied to a person incapable of contracting or on his account.  Reimbursement of person paying money due by another.

Breach of Contract & Remedies Available  Breach of Contract is another mode of discharge  When one party fails to perform the contract  Anticipatory – before the time fixed for performance ◦ Expressly by words spoken or written ◦ Impliedly by conduct of parties ◦ Effects – either sue for damages or make the party responsible for consequences of non performance of contract .

Breach of Contract & Remedies Available  Actual Breach – When one party fails to perform the contract on the actual date of the performance of the contract  Injured party is entitled to ◦ Rescission of the Contract – cancel the contract – file suit for damages ◦ Suit for damages     Ordinary Special Exemplary Nominal ◦ Suit upon Quantum Meruit – as much as he earned or in proportion to work done ◦ Suit for Specific Performance ◦ Suit for injunction .

Indemnity and Guarantee • Contract of Indemnity – 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 • A person who promises to make good the loss is called the indemnifier • A person whom the loss is to be made good is indemnified .

Indemnity and Guarantee  Contract of Guarantee – A contract to perform the promise. or discharge the liability of a third person in case of his default  A person who gives the guarantee is called a surety  A person in respect of whose default the guarantee is given is called the principal debtor  Consideration is important .

 Extent of Liability ◦ Surety is liable only on the default of the principal debtor ◦ Liability of surety arises immediately on the default of the principal debtor ◦ Principal debtor need not resort to securities before suing the surety ◦ Surety will not be liable for creditor guarantee by misrepresentation .Nature and Extent of Surety’s Liability  The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.

Continuing Guarantee • When a guarantee is given for a single or specific debt – single or specific guarantee • When a guarantee extends to series of distinct or separable transactions – continuing guarantee • Revocation of Continuing Guarantee – Notice to Creditor by surety – Death of the surety .

Discharge of Surety  Notice of Revocation  Death  Variance of Terms of Contract  Release by principal debtor  Arrangement by creditor with principal debtor  Creditor’s Act or omission impairing surety’s remedy  Loss of security  Invalidation of contract of Guarantee .

it may be defined as a conditional contract.CONTINGENT CONTRACTS • Section 31of the Indian Contract Act defines contingent contract as – “ A contract to door not to do something if some event. does or does not happen” • So in simple words. collateral to such contract. .

• The event must be collateral to the contract .Essential Elements of Valid Contingent Contract • There must be a valid contract. • The performance of the contract must be conditional. • The event must be future uncertain.

So the contract will be enforced only if the happening of that uncertain event becomes impossible as that event cannot happen. So the contract will be enforced only if that uncertain event has happened. (Section 32) • It depends on the Non-Happening of the future uncertain event.Rules regarding the enforcement of the Contingent Contract • It depends on the happening of the future uncertain event.(Section 33) .

Rules regarding the enforcement of the Contingent Contract Cont.(Section 35. • It depends on the happening of the specified uncertain event within the fixed time.. So the contract will be enforced only if that uncertain event happens within the fixed time. So the contract will be enforced only if the happening of that uncertain event becomes impossible within the fixed time as that event cannot happen. second para) . (Section 35) • It depends on the Non-Happening of the specified uncertain event within the fixed time.

. .Rules regarding the enforcement of the Contingent Contract Cont. This will be void whether the impossibility of the event is known or not to the parties at the time of making the contract. • Contingent Contract dependent on the impossible event is void and cannot be enforced by law as the impossible event will never happen.

Problems .

Problems  A invites B for a Dinner. A makes an elaborate arrangement but fails to turn up.  B sues for the loss sustained . B accepts the invitation.

Answer • No . because the agreement of a social nature and hence lacks the intention to create legal relationship. A cannot sue B for the loss he has suffered. • Essentials of a valid contract .

and in consideration M agrees to write 100 pages of report form him in five minutes.100.Problem • N agrees to pay Rs. • Is it a valid contract .

Answer  No. it is not a valid contract.  It is a void agreement because an agreement to do an act impossible in itself is void. .

.Problem • A aged 15 yrs obtains a loan form B. Can A be asked to repay the money.

A cannot be asked to repay the money.Answer • No. • A minors agreement is void abnitio .


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