CONTRACT ACT

Basics of Contract Act

 CONTRACT
 Meaning and definition of Contract & other
relative terms such as Offer, Acceptance etc as per
Contract Act,1872.
 Elements and classification of Contracts
 Relevant provisions of the Act & cases
 Communication & Revocation
 Discharge of Contract
 Remedies for breach of Contracts
 Precautions
 Special Contracts – agency; Contingent, minor,
quasi, mortgage,
 CONTRACT
 Agreement in daily life
 An Agreement is defined
in section 2 (e) of the Act
is - a promise .
 Promise – a proposal
when accepted , becomes
a promise. ( Sec 2 b).
 Agreement = Offer +
Acceptance
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 Every Agreement is not a Contract.
 AGREEMENT ENFORCEABLE IN LAW
IS CONTRACT.
 Contract : Agreement + enforceable by law.
i.e. legal obligations to do or abstaining
from doing anything. ( Social, illegal)
 All contracts are agreement but all
agreements are not contracts
 CONTRACT ACT
 The Contract Act is the law of those
agreements which create obligation and
there is a legal remedy for the breach
thereof.
 Legal Contracts creates “Rights in
Personam” as distinguished from Rights in
Rem i.e. Rights against the whole world.
» Consensus-ad-idum
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Essential of Contract:
 Agreement & Legal Obligation ;
 Section 10 : states elements of Contract which are
– Agreement ( Offer+ Acceptance)
» Two parties ( Promisor & Promisee)
– Intention to create legal relationship
– Free Consent ( Sec 13,14)
» Coercion(15), Undue Influence(16), Fraud(17),
Misrepresentation (18) or Mistake ( 21-22)
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 Elements of Contract :
– Parties competent to Contracts
» Minor, unsound mind, disqualified by law
– Lawful consideration
» ( Past , present, future, cash, kind, act, abstinence)
– Lawful Object ( Not illegal/immoral)
– Agreements not declared void or illegal ( S 24-30)
– Certainty of Meaning (29)
– Possibility of performance
– Necessary Legal Formalities
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Classification/Types of Contracts:
 Classification according to Enforceability :
– Valid, Void & Voidable, Illegal, Unenforceable
» Valid = section 10 elements
» Enforceable at the option of one or more parties = Voidable
» Section 23-30 = Void
 Classification according to Formation
– Express, Implied & Quasi Judicial
 Classification according to Performance :
– Executed, Executory, Unilateral, Bilateral
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Precautions :
 Elements of valid contract
 DATE & Place
 Name of the Parties & status thereof
 Signed by the Same Person or POA = Free
consent. Sign on each page.
 Terms and consideration to be clearly defined
 All column to be filled up
 Modification or Over-writing to be initialed
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OFFER & ACCEPTACE :
 Offer – Section 2 (a) : Proposal ;
 How an offer is made : Express =spoken, written
Implied/by way of Conduct – Act or Omission
 General and Specific Offer
 Essential of Valid Offer :
– Must be made with a view to obtaining acceptance
– Must be made with the intention of creating legal
relation
– Terms of offer must be definite, unambiguous & certain
of capable of being made certain
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 Elements of OFFER:
– It must be distinguished from mere declaration
of intention or invitation of offer. ( A Tender is
an offer)
– It must be communicated to offeree
– The offer must not be contain a term the non-
compliance of which may be assume to amount
to acceptance
– Special Terms
– Cross offers
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Termination/Lapse of Offer
 The offer lapses after stipulated or reasonable time
 Death or insanity of the offeror or the offeree
 Rejected by offeree
 Revoked by Offeror
 Not being accepted in the specified mode or
reasonable manner.
 Counter offer
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 ACCEPTACE :
 Meaning
 Acceptance how made and by whom
 Elements of ACCEPTANCE :
– It must be absolute & Unqualified
– It must be communicated to the Offeror
– It must be according to the mode prescribed
– It must be given in specified time
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 ELEMENTS OF ACCEPTANCE:
– It must be in response to the Offer
– It must be made before the offer is lapses,
terminated, withdrawn or revoked
– It must be given to the Offeror or its Authorized
Agents.
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COMMUNICATION of Offer, Acceptance &
Revocation thereof.
 Offer :The communication of offer is complete
when it comes to the knowledge of the person to
whom it is made.
 Acceptance : The communication of Acceptance is
complete :
– Against the proposer – when it is put into a course of
transmission so as to be out of power of the acceptor
– Against the Acceptor – when it comes to the knowledge
of the Proposer.
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Communication of Revocation :
 The communication of revocation is
complete :
– Against the person who makes it – when it is
put into a course of transmission so as to be out
of power of the person who makes it.
– Against the person to whom it is made – when
it comes to his knowledge.
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Section 5 : Revocation of Offer &
Acceptance :
 Offer : An offer may be revoked at any time
before the communication of its acceptance
is complete as against the Proposer.
 Acceptance : An Acceptance may be
revoked at any time before the
communication the acceptance is complete
as against the Acceptor.
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Contract with MINOR :
 Indian Majority Act – not completed 18 years.
 Law protects minor but no hardships to others.
 A Minor is not competent to contract, hence
a contract with Minor is Void-ab-intio.
– Mohri Bibi Vs Dharam Das Ghosh
 Minor can be beneficiary
– Scooter, Raghav Vs Srinivas = mortgage in favour of M
 The agreement cannot be ratified by the Minor on
attaining majority. ( Exception = Sindha Vs Abrahim = continuity of
service after majority)
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 Minor can not be asked to refund the benefit,
profit enjoyed by him. (s65)
 A Minor can always plead minority, (even if he
misrepresented his age – he will have to restore the property).
 Minor’s parent cannot be liable to Minor’s
creditor for the breach of contract, however any contract
entered into on behalf of Minor by the Parents can be enforced
provided it is in their authority and for the benefit of Minor.
 A Minor cannot be a partner in any Partnership
Firm except for profits.
 A Minor can act as Agent.
 Minor cannot be adjudged as an insolvent.
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 A Minor’s estate is liable to a person who
supplies necessaries of life to a Minor.
– Necessary goods
» Not only bread and clothes but may include watch,
bicycle etc.
» Reasonably necessary to him having regard to his
life style
 11 coats – not, Fur coat may be
– Necessary Services – education, sports training etc.
– Loan for necessaries
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Discharge of Contract : (means termination of contractual relationship,
whereby all rights and obligations are created by it come to end.)
 By Performance
– Doing of what is required under contract, parties fulfills their obligation
within time and manner prescribed therein.
– Unilateral and bilateral
– Actual and attempted performance (only an offer to perform).

 By Mutual Consent ( Expressed or implied):

– Novation :
» new contract substitutes the existing one, with consent of all the parties
» Same terms or better terms
» Same parties or more parties – e.g. debtor, creditor and guarantor.
» Should be done before expiry of the existing contract
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– Rescission :
» All or some of the terms are cancelled with the mutual consent
» One party fail to perform; other party may rescind the contract

– Alteration : change in the terms

– Remission : discount, acceptance on lesser fulfillment
– Waiver :
– Merger : inferior right merges into a superior right
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 By Impossibility of performance ( Doctrine of
Frustration):
– Impossibility at the time of execution of Contract
» Known to the parties = Void ab-intio
» Unknown to the parties = void on the ground of mutual mistake
– Impossibility during the Term of the Contract
» Void when it becomes impossible.
 In the following conditions which are beyond the control of the parties the
contract is deemed to be discharged:
– Destruction of subject matter
– By Death or disablement of the parties
– Change of law
– Declaration of war
– Non existence or non occurrence of a particular state of things
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 Exception to the Doctrine of Frustration :
» Impossibility as a rule is not an excuse for non
performance except in the following circumstances:
– Difficulty of Performance
– Commercial Impossibility
– Dependency on Third party ( Job Work)
– Strikes, lock out and civil disturbance, unless
there a force majure clause.
– Failure of one of the objects.
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 Discharge by lapse of time
 Discharge by Operation of Law:
– By Death : ( Personnel skill)
– By Insolvency
– By unauthrised (unilateral) alteration
– merger

 By Breach of Contract
– Anticipatory Breach – repudiates before time
– Actual Breach – repudiates at or during the time
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 Remedy for Anticipatory breach
– Rescind and damages
– Specific performance &
– Injunctions
 Remedy for Actual breach
– Damages
– Time is the essence
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 Remedies for Breach of Contract :
– Recession of the Contract
– Damages ( Doctrine of Restitution)
» Ordinary Damages – Usual course of business; Diff.
bet. contract price and market price
» Special Damages-Likely to arose (Loss of profit)
 Remote Loss/Quasi Contracts – no damages
» Vindictive Damages – to punish the defaulter.
( Marriage and S138 of NIA)
» Nominal Damages – only technical violation but no
loss
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» Loss of reputation – only bank
» Damages for inconvenience
» Mitigation of damages
» Cost of Decree
» Liquidated Damages – predetermined amount
» Penalty ( Interest)
– Specific performance
– Injunctions
– Quantun Meruit
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Quasi ( Constructive) Contract :
 Meaning – law of equity/restitution
 Contract created by law
 Kind of Quasi Contracts
– Supply of necessaries ( S68)
– Payment by interested person ( S 69)
» Protection of one’s interest
» The payment should not be voluntary one
» The payment should be such as that other party was bound by
law
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 Kind of Quasi Contracts
– Obligation to pay for non-gratuitous acts (S 70)
» Act must have been done lawfully
» Person doing the act should not have intended to do
it gratuitously
» Other person have enjoyed the benefit
– Responsibility of finder of goods ( S 71)
– Mistake or Coercion (S 72)
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 Quantum meruit ( as much as earned)
 When the original contract is discharged
 When :
– An agreement is discovered or become void
– Completion of work is prevented by other party
– Contract is divisible
– Remuneration is not fixed