Contract Law

Presented by

JURIS ACADEMY
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What is a Contract?
When Consideration
PROPOSAL PROMISE AGREEMENT
Accepted
Promisor Promisee
Enforceable at the
option of one or more
Enforceable by Law Not Enforceable by Law parties but not at the
[S. 2(h)] [S. 2(g)] option of other(s)
[S. 2(i)]

CONTRACT VOID VOIDABLE CONTRACT

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THE INDIAN CONTRACT ACT, 1872

What is Proposal?
PROPOSAL

PROPOSAL: When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtain the assent of that other , he is
said to make a proposal [S. 2 (a)]

INVIATION TO TREAT / INVITATION TO OFFER: When a man advertises that

he wishes to sell his property or when an auction for valuables is invited or
presentation of menu card in a restaurant does not results in an offer or proposal. A
proposal is final expression of willingness.

When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. [S. 2(b)]
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What is Promise?
When
PROPOSAL PROMISE
Accepted
Promisor Promisee

PROMISE: A proposal when accepted becomes a Promise [S. 2(b)]

The person making the proposal is called the PROMISOR [S. 2(c)]
The person accepting the proposal is called the PROMISEE [S. 2(c)]

How Acceptance is made?

Proposal or acceptance of any promise may be made expressly (in words-written or
oral or in any other form) or implied (gesture or otherwise) [S. 9].
The acceptance may also be made by performance of conditions of proposal or by
acceptance of the consideration for a reciprocal promise offered with a proposal. [S. 8]
The acceptance must be absolute and unqualified (unconditional). It must be
expressed in some usual and reasonable manner or in the manner prescribed in the
proposal [S. 7].
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Communication when complete?

S. 4. The communication of a proposal is complete, —
when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete,—

as against the proposer, when it is put in a course of transmission to him, so as to be
out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete,—

as against the person who makes it, when it is put into a course of transmission to the
person to whom it is made, so as to be out of the power of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
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What is an Agreement?
When Consideration
PROPOSAL PROMISE AGREEMENT
Accepted
Promisor Promisee
AGREEMENT: Every promise and every set of promises, forming the consideration
for each other, is an agreement [S. 2(e)]
Consideration
CONSIDERATION: When, at the desire of the promisor, the promisee or any other
person has done or does or promises to do, something, such act or abstinence or
promise is called a consideration for the promise. [S. 2(d)]

Past Consideration: If the act has been done before any promise is made, it is called
past consideration and a past consideration is no consideration.

Executed Consideration: means an act which has been done in response to a positive
promise.

In an executory consideration the liability is outstanding on both sides.

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What is a Social Agreement?

When Consideration
PROPOSAL PROMISE AGREEMENT
Accepted
Promisor Promisee
SOCIAL AGREEMENTS: The agreements where there is no legal intention to
enter into legal contractual relationship e.g. in family matters

The rule of PRIVITY OF CONTRACT means that a stranger to contract cannot

sue. PRIVITY OF CONSIDERATION is not followed in India
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What is a Contract?
When Consideration
PROPOSAL PROMISE AGREEMENT
Accepted
Promisor Promisee
Enforceable at the
option of one or more
Enforceable by Law Not Enforceable by Law parties but not at the
[S. 2(h)] [S. 2(g)] option of other(s)
[S. 2(i)]

CONTRACT VOID VOIDABLE CONTRACT

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What Agreements are Contracts?

All agreements are Contracts if [S. 10] :
They are made by Free Consent of parties Competent to Contract

For a Lawful Consideration

With a Lawful Object

Not expressly declared to be Void under Indian Contract Act, 1872

A Law may require a Contract:

oTo be made in Writing or

oIn Presence of Witnessess or

oRegistration of Documents
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Competent Parties [S. 11]

Every Person is Competent to Contract who is:

of age of majority according to the law to which he is subject

Indian Majority Act, 1875
As per Age of Legal Capacity (Scotland) Act 1991, a person of
or over the age of 16 years shall have legal capacity to enter into
any transaction.
of sound mind (at the time of signing a contract)

is not disqualified from contracting by any law to which he is

subject (e.g. insolvents, persons not qualified for providing professional services)
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Free Consent [S. 14]

Consent is said to be free when it is not caused by:
Coercion [S. 15]
Coercion is causing a person to enter into a contract by employing criminal ways
Undue influence [S. 16]
A contract is said to be caused by undue influence where one of the party is in a
position to dominate the will of the other and uses that position to obtain an unfair
advantage over the other
Fraud [S. 17]
Fraud includes deceitful means, unbelievable suggestions, active concealment and
other fraudulent means
Misrepresentation [S. 18]
Misrepresentation means and includes unwarranted information, breach of duty
without intent to deceive, misleading, innocently causing another to make a mistake
as to the substance of the subject matter of agreement
Mistake [S. 20]
When both the parties are under a mistake as to matter of fact essential to the
agreement
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Without free consent

Cause Effect on
Agreement
Coercion [S. 15] Voidable [S. 19]

Undue influence [S. 16] Voidable [S. 19A]

Fraud [S. 17] Voidable [S. 19]

Misrepresentation [S. 18] Voidable [S. 19]

Mistake of Fact or Foreign Law [S. 20, 22] Void [S. 20, 22]

Mistake of Law [S. 21] Valid [S. 21]

(Ignorance of law is no excuse)
e.g. selling crackers in Delhi, Alcohol in
Bihar)
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Unlawful Consideration and Objects

[S. 23]
Forbidden by law

Which defeat the provisions of any law

Fraudulent

Involve or imply injury to the person or property of another

Court regards it as immoral or opposed to public policy

Note: Every agreement of which the object or consideration is

unlawful is void [S. 24].
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Agreements expressly declared to be Void

Agreements
Based on Mistake of Fact or mistake of Foreign Law [S. 20, 21]
With unlawful object or consideration [S. 24]
Without consideration [S. 25]
In restraint of Marriage [S. 26]
In restraint of Trade [S. 27]
In restraint of Legal Proceedings [S. 28]
Uncertain [S. 29]
By way of Wager [S. 30]
Contingent on impossible events [S. 36]
To do impossible acts [S. 56]
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Modes of Discharge of Contract

A contract may be discharged by:

Performance [S. 31-67]

Impossibility of Performance [S. 56]

By Agreement (Novation, Rescission or Alteration) [S. 62-67]

Breach of Contract [S. 73-75]

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Compensation
In case of rescinding a Voidable Contracts [S. 19, 19A, 39]
A person who rightfully rescinds a contract is entitled to compensation for any
damage which he has sustained through the non-fulfilment of the contract. [S. 75]
Such person shall restore benefits, if received any, to the other party. Other party
need not perform any promise therein. [S. 64]

In case of a void agreements or when contract becomes void

[S. 65]
When an agreement is discovered to be void, or when a contract becomes void,
any person who has received any advantage under such agreement or contract
is bound to restore it, or make compensation for it to the person from whom he
received it.
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Compensation for breach of Valid Contracts

Unliquidated Damages (to be determined by Court) [S. 73]
When a contract has been broken, the party who has broken the contract has to
compensate the party who suffers for such breach
The quantum of compensation for any loss or damage caused to party who suffered
breach would be:
General Damages: which naturally arose in the usual course of things from such
breach or
Special Damages: which the parties knew, when they made the contract, to be
likely to result from the breach of it. would be
Such compensation is not to be given for any remote and indirect loss or damage
sustained by reason of the breach

Liquidated Damages (pre-determined) [S. 74]

When a contract stipulates the amount of compensation to be paid, in case of
breach, such reasonable and pre-determined compensation is payable, whether or
not actual damage or loss is proved to have been caused.
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Quasi Contracts
Some obligations are neither contracts nor torts but justice
require them to be fulfilled. Such situations resemble like
partial contracts.
[S. 68] Claims for necessaries supplied to person incapable of contracting on his
account
[S. 69] Reimbursement of person paying money due by another, in payment of
which he is interested
[S. 70] Obligation of person enjoying benefit of non-gratuitous act
[S. 71] Responsibility of finder of goods as bailee
[S. 72] Liability of person to whom money is paid, or thing delivered by mistake
or under coercion