Contract Laws

By Adv. Anjali Wagh.

1 Adv. Anjali Wagh

Contract Act.
 1. The formation of contracts
 1. The offer
 2. The acceptance [characteristics, effects, legal
enforceability, the privity of contracts]
 3. The conditions of validity [ of ordinary law, price in the
sales contract, nullity]

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In simple words.
 All contracts are agreements but all agreem
 ents are not contract.
 Eg. Will you buy my Phone is a proposal . You accept it so
it is a promise.
 In this deal consideration was money and Phone. so it is
an agreement.
 Every agreement enforceable by law is a contract.
[ Means law can force it.]
 Eg. Chair ordered on Amazon. Money paid but goods
not delivered.

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Introduction in legal language.
 Every promise and every set of promises, forming the
consideration for each other, is an agreement.
 {Section 2(e)} A person makes a proposal (Offer). When
it is accepted by other, it becomes a promise (Acceptance).
Offer + Acceptance = Promise
Only a mutual promise forming consideration for each other
is ‘agreement’.
 Promise + Consideration = Agreement

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What is contract?
 An agreement enforceable by law” is Contract.
 - Section 2(h) There must be legal relationship.
Agreements of social or domestic nature are not contracts.
 Examples: Invitation to a Birthday party .
 After fulfilling essential conditions an agreement will be
enforceable.
 Agreement + Enforceability= Contract.

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Essentials of valid contract.
 Two parties—one cannot enter into the contract with
himself or herself so we should have two parties for
making a contract. e.g. Mr. X buys a pen for Rs. 10 from
Mr. Y
 Offer and Acceptance-- 'lawful offer' by one party and
'lawful acceptance' of the same by the other party.
 An agreement. – This is very important for formation of
contract. It is a proof for contract.
 Promise + Consideration = Agreement

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Continue.
 Agreement should give rise to legal obligation—e.g.
Invitation to marriage is not creating any legal obligation
so it is not a contract.
 Competent parties—It means a person who is competent
to form a contract can only form a contract
 He must be 18 years old.
 He must be of sound mind and
 He should not be disqualified from contracting by any law. .

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Intention to create a contract—

 Case :- Balfour vs. Balfour(1919)

 Mr. Balfour and his wife went to England for a vacation, and his
wife became ill and needed medical attention. They made an
agreement that Mrs. Balfour was to remain behind in England
when the husband returned to Ceylon (Sri Lanka) and that Mr.
Balfour would pay her £30 a month until she returned. This
understanding was made while their relationship was fine;
however the relationship later soured. He stopped sending money .
 The lower court found .
 Arrangements made between husbands and wives are not generally
contracts as the parties do not intend to be legally bound by the
agreements.

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continue
 In case, there is no such intention on the part of
parties, there is no contract. Agreements of social or
domestic nature do not contemplate legal relations.

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Essentials of valid contract

 Must be free consent—The consent of the parties to the agreement

must be free and genuine. Free consent is absent if consent is
induced by coercion, undue influence, fraud, misrepresentation or
mistake.
 Lawful consideration—The agreement must be supported by
consideration on both sides. Consideration is something in return.
 Certainty of contract-- "Agreement the meaning of which is not
Certain or capable of being made certain are void.“ eg.Mr.X
ordered 2bags of oil. But Which oil is ordered is not clear so
agreement is void.

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Essentials of valid contract
 Lawful object —the object of the contract must not be
illegal, immoral and opposed to public policy.
 Agreement not declared void—Agreement in restraint of
marriage, trade, legal proceedings, are specially declared
void.
 Legal formalities -- Not applicable in all cases.

some times registration is important in a contract. Eg. Shop

purchasing.

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Offer and Acceptance

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Offer, acceptance&
Consideration.

 Offer
 Offer & proposal are same.
 Offer is 1’st step of formation of contract.
 If offer is accepted then contract comes into existence.

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Case law Hyde V. Wrench
 A offered to sell B his farm for Rs. 10 lakhs.B said he
would buy for 9 lakhs . A refused to sell . Then B
expressed his willingness to buy for 10 lakhs.There is no
contract . The offer to buy for Rs.9 lakhs is a counter
offer.

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15 Adv. Anjali Wagh
Definition of offer

 One person signifies to another his willingness to do or

abstain from doing anything with a view to obtaining the
assent of that other to such act or abstinence he is said to
make an offer.

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Example.

 Ex—I am willing to die for my country.

 This is not proposal because not to obtain assent of other
party.
 Ex—I am ready to marry you.
 This is to obtain assent of other party.
 This concept is same like offer, which is in English law.

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Lapse of offer
 By lapse of time—specified time is considered.
 If it is not specified then lapse of reasonable time.
 By non-fulfillment of condition precedent
 By death or insanity of proposer.

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Communication of offer.
Sec 3

 There is no offer till it is communicated.

 If A says that if this Act is done & B did not know
that offer there will be no contract.
 Invitation to offer
 Eg Quotation of the usual prices of a trader. These are
invitations to offer.
 So every offer does not creat obligation so price tag is
not offer but invitation to offer

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Revocation of offer
 An offer may be revoked any time before the completion
of the communication of the acceptance as related to the
acceptor, but not afterwards.
 Following ways in which a proposal may be revoked.
 By communication – notice of revocation by the proposer
to the other party.

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Acceptance
 Acceptance
 When the person to whom the proposal is made signifies
his assent ,thereto the proposal is said to be accepted.

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Valid acceptance

Acceptance must be made by the person

To whom offer is made.
 It should be absolute & unqualified.
 Be express or implied.
 Be communicated to offeror.
 Be given for the offer which has been communicated.
 Be in the prescribed mode.

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Continue

 Be communicated within a reasonable time.

 Silence is not considered as a mode of acceptance.

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Continue
 A conditional acceptance is no acceptance at all

 B offered to purchased a house upon certain terms

possession to be given on or before 25’th july. A
agreed to the terms but said he would give possession
on the 1’st of August
 It was held that it was not acceptance of B’s offer.

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Acceptance must be in the way prescribed by the offeror

 When proposer chooses to require that the goods will be

delivered at a particular place . he is not bound to accept
delivery at any other place.
 It is Make a proposal which is called as an offer & other party
shd give his consent which is called acceptance There shd be
proper communication for offer & acceptance.
 not enough in law.

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Continue

 Acceptance Should be communicated in reasonable

manner.
 Particular mode of acceptance.
 Offeror can insist that the acceptance must be express in
the mode prescribed by him.

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Continue

 Acceptance Must be given within stipulated time.

 If acceptance not communicated within the time
stipulated in the offer.
 It will not bind the offerer.
 It is not acc. In the eyes of law.

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Privity of contract no obligation who is not party.

 Description
 The doctrine of privity of contract is a common law
principle which provides that a contract cannot confer
rights or impose obligations upon any person who is not a
party to the contract.
 The premise is that only parties to contracts should be able
to sue to enforce their rights or claim damages as such.

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continue
 What does a privity of contract means?
 Privity of contract is the rule that specifies only the
parties directly involved in a contract can enforce the
terms of the contract. It protects the parties from third-
party interference.

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Privity of Contract
 Privity of Contract is a common law doctrine that
provides that a contract cannot confer rights or impose
obligations that arise under the contract on anyone other
than one of the parties to the contract. As such, the only
parties who should be able to sue to enforce their rights or
claim damages are the parties to the contract.

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Privity of Contract
 For example, Andrew and Ben entered a contract under which
Andrew agreed with Ben to give a valuable diamond to Carrie.
 Both Andrew and Ben fully intended for Carrie to take the
benefit of Andrew’s promise. Under the doctrine of privity of
contract, if Andrew for some reason does not give the
diamond to Carrie, Carrie cannot sue Andrew as she is not a
party to the contract.
 Ben can sue Andrew for breach of contract, but Ben will only
be entitled to nominal damages as Ben has not suffered any
actual loss.

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What is privity of contract and exception?

 The word 'privity' means 'with knowledge and consent'.

 According to this doctrine, only parties to a contract have
the right to enforce the rights and obligations provided by
the contract and strangers to the contract are barred from
enforcing any obligation on any party.

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Exceptions to the rule that a Third Party to contract cannot
sue

 Trust of contractual rights or beneficiary under a contract

 A trust refers to something created by a contract for the benefit of a third party. In
a contract of trust, the trustor transfers the title of a property to the trustee, so that
the trustee holds it for the benefit of a third party who is also called the
beneficiary.
 Even though beneficiaries are third parties to a contract they have the right to
enforce the provisions of trust.
 To cite an example, in the case of Rana Uma Nath Baksh Singh v. Jang
Bahadur (1938), the trustor was a father who transferred all of his estates to his
son for him to hold in trust for the benefit of the trustor’s illegitimate son. The son
had the obligation to provide the illegitimate son with money on a regular basis.
 When the son failed to perform his obligation, the illegitimate son filed a suit to
recover the amount to be paid and the suit was maintainable even though he was
not a party to the contract.

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Provision for marriage or maintenance under
family arrangement

 In a contract for a family settlement either for marriage or

maintenance, where the contract is intended to benefit a
third party, he may sue on the contract to secure his
rights.
 For example, in the case of Lakshmi Ammal v.
Sundararaja Iyengar (1914), there was an agreement
among the brothers of a Hindu joint family to pay for the
expenses to be incurred for the marriage of their sister.
 Despite being a third party to the agreement, the sister had
the right to enforce the provision that was made for her.

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Acknowledgement or Estoppel

 According to the law of estoppel, if a person by words or

conduct suggests something, he is not allowed to contradict
it later.
 Thus, if a party to a contract acknowledges by words or
conduct that a third party has the right to sue him, he cannot
deny that later by the rule of estoppel.
 In such cases, a suit filed by that party, despite being a
stranger to the contract, is maintainable.
 For example, A and B enter into a contract where A pays B a
sum of money that has to be given to C. B acknowledges to
C that he is holding the sum for him. If B defaults in the
payment, C will have the right to recover the sum from him.
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Contracts entered into through an agent

 It is not uncommon for people involved in commerce and

business to enter into contracts through their agents. These
agents can enter into contracts for them and represent them in
the relations that arise in such contracts. Thus, whatever
contracts entered into by an agent while acting within the
scope of his authority can be enforced by the principal. It may
seem that the agent is the party to the contract, but in reality,
he is more of a representative of the principal.
 For example, A appoints B as his agent. He asks B to buy a
bag of rice from C on his behalf. Here, B enters into a
contract with C when he buys the bag of rice, but it is A who
has the right to enforce the contract as B is a mere
representative of A.
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Collateral contracts

 Collateral contracts refer to the contracts subsidiary to the

original contract. It could be entered into by the same
parties or one of the original parties with another party. It
can be made before or after the main contract is formed.
When a third party has entered into a collateral contract,
he can also file a suit to enforce the main contract in spite
of not being a party to it.
 The best example of a collateral contract is a
manufacturer’s guarantee regarding the goods sold. The
sale of the goods is the main contract and the guarantee is
the contract collateral to it.

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 In the case of Shanklin Pier Ltd. v. Detel Producers Ltd.
(1951), a person A was employed as a contractor by B. B
asked A to buy some paint manufactured by C. B wanted
A to buy C’s paint because of a statement that was once
made by C that the paint would last for seven years. But
the paint only lasted for three months. In this case, the
guarantee given by C to B forms a contract that is
collateral to the contract made by A and B. The suit filed
by B was maintainable even though he was not a party to
the main contract.

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The conditions of validity [ of ordinary law, price in the
sales contract, nullity]

 Offer or proposal and acceptance

 Competent parties.
 Intention to create legal relationship
 Must be free consent.
 Lawful consideration.
 Lawful object.
 Agreement not declared void.
 Compliance with legal formalities.
 Certainty and possibility of performance.

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Nullity legally void in nature
 Nullity, in general, means an act that is legally void in
nature. In case of a marriage, it means a legal statement
by the family court that there was the marriage didn't exist
between two people, and marriage was not valid.

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Nullity of Marriage Under Special Marriage Act,
1954

 Either party has a living spouse.

 Either party was incapable of giving valid consent due to
unsoundness of mind or mental illness or unfit to the
procreation of children.
 Parties are under aged.
 Impotency of respondent.

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Contractual liability
 What is the meaning of contract liabilities?
 Contractual liability means that one business agrees to
pay for any losses or damages caused by another
party.
 This is useful when one or more businesses enter into a
contract, and sub-contractors come into play.

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Meaning
 Contractual liability means that one business agrees to pay
for any losses or damages caused by another party. This is
useful when one or more businesses enter into a contract,
and sub-contractors come into play. Here’s a fictional
example of when contract liability is beneficial for a
business:

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The effects of contractual provisions
 Provisions concerning the price, the ownership transfer.
 Section 55 in The Transfer of Property Act, 1882
 55. Rights and liabilities of buyer and seller.—
 In the absence of a contract to the contrary, the buyer and
the seller of immoveable property respectively are subject
to the liabilities, and have the rights, mentioned in the
rules next following, or such of them as are applicable to
the property sold:—

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Provisions concerning the price, the ownership
transfer.

 (1) The seller is bound—

 (a) to disclose to the buyer any material defect in the
property of which the seller is, and the buyer is not, aware,
and which the buyer could not with ordinary care
discover;
 (b) to produce to the buyer on his request for examination
all documents of title relating to the property which are in
the seller’s possession or power;
 (c) to answer to the best of his information all relevant
questions put to him by the buyer in respect to the
property or the title thereto;

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Provisions concerning the price, the ownership
transfer.

 (d) on payment or tender of the amount due in respect of

the price, to execute a proper conveyance of the property
when the buyer tenders it to him for execution at a proper
time and place;
 (e) between the date of the contract of sale and the
delivery of the property, to take as much care of the
property and all documents of title relating thereto which
are in his possession as an owner of ordinary prudence
would take of such property and documents;
 (f) to give, on being so required, the buyer, or such person
as he directs, such possession of the property as its nature
admits;
46 Adv. Anjali Wagh
Provisions concerning the price, the ownership transfer.

 (g) to pay all public charges and rent accrued due in

respect of the property up to the date of the sale, the
interest on all encumbrances on such property due on such
date, and, except where the property is sold subject to
encumbrances, to discharge all encumbrances on the
property then existing.

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Provisions concerning the price, the ownership
transfer.

 The seller shall be deemed to contract with the buyer that

the interest which the seller professes to transfer to the
buyer subsists and that he has power to transfer the same.
 Where the whole of the purchase-money has been paid to
the seller, he is also bound to deliver to the buyer all
documents of title relating to the property.
 The seller is entitled to the rents and profits of the
property till the ownership thereof passes to the buyer;

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Provisions concerning the price, the ownership
transfer.

 The buyer is bound—(a) to disclose to the seller any fact

as to the nature or extent of the seller’s interest in the
property of which the buyer is aware, but of which he has
reason to believe that the seller is not aware, and which
materially increases the value of such interest;
 Buyer is bound to pay or tender, at the time and place of
completing the sale, the purchase-money to the seller or
such person as he directs:

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Provisions concerning the price, the
ownership transfer.
 The buyer is bound where the ownership of the property
has passed to the buyer, to bear any loss arising from the
destruction, injury or decrease in value of the property not
caused by the seller;
 The buyer is bound ownership of the property has passed
to the buyer, as between himself and the seller, to pay all
public charges and rent

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Provisions concerning the price, the
ownership transfer.
 The buyer is entitled— where the ownership of the
property has passed to him, to the benefit of any
improvement in, or increase in value of, the property, and
to the rents and profits thereof.

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Agreement on the place of jurisdiction
 Section 9 of The Code of Civil Procedure, 1908 (“CPC”) states
that, all courts shall have jurisdiction to try all suits of civil
nature unless the jurisdiction is either expressly or impliedly
barred. The CPC, through Section 20 lays down the various
jurisdiction of the Courts where a suit can be instituted, such
Courts, may be in the jurisdiction of the defendants' resident or
place of business or jurisdiction of the place where the cause of
action wholly or partially arises.
 With a view of convenience and minimizing legal costs for the
parties, The Indian Contract Act gives an extent of liberty
to the parties to limit the place of legal proceedings to one
place and forum. This is done by expressly including a
valid “Exclusive Jurisdiction” clause in the Contract.
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Arbitration clause
 Arbitration is an out-of-court proceeding in which a
neutral third party called an arbitrator hears evidence and
then makes a binding decision.
 Arbitration is the most commonly used method of
alternative dispute resolution, and you'll find an
arbitration clause in the fine print of all kinds of contracts
these days. Read on to find out whether you should
include an arbitration clause in your agreement.

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Who Can Arbitrate Disputes?

 Arbitration can be voluntary (the parties agree to do it) or

mandatory (required by law). Most contract arbitration
occurs because the parties included an arbitration clause
requiring them to arbitrate any disputes "arising under or
related to" the contract.
 If a provision like this isn't included in the contract, the
parties can still arbitrate if they both agree to it (although
it's tough to reach an agreement to arbitrate once a dispute
has arisen).

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Continue
 Advantages.
 Arbitration is usually faster, simpler, more efficient,
and more flexible for scheduling than litigation.
 Also, it avoids some of the hostility of courtroom
disputes, perhaps because it's a private proceeding versus
the public drama of the courtroom.
 And if the subject of the dispute is technical--for
example, about a patent--the parties can select an
arbitrator who has technical knowledge in that field,
rather than a judge who may not be familiar with the
issues.

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Continue
 Disadvantages.
 Unlike a court ruling, a binding arbitration ruling can't
be appealed. It can be set aside only if a party can prove
that the arbitrator was biased or that the arbitrator's
decision violated public policy.

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Renegotiation clause
 What is a renegotiation clause?
 “Renegotiation clauses are provisions in contracts that,
upon the happening of certain event or events, require
all parties to return to the bargaining table and
renegotiate the terms of their agreements.
 The Concept of Renegotiation
 The concept of renegotiation of contract is based on the
legal maxim “rebus sic stantibus” (things thus standing);
a legal doctrine that allows a contract to become
inapplicable because of a fundamental change of
circumstances which may warrant revisiting a contract
and renegotiating some terms therein.
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Penal clause
 The term 'contractual penalty clause' refers to a clause in
a contract whereby a party in breach of an obligation
under the contract is required to pay the other party an
amount which is greater than the reasonable proportion of
the damage or loss suffered due to such breach.

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Penalty clause
 A penalty clause is a contractual clause that imposes
liquidated damages that are unreasonably high and
represent a punishment for breach, rather than a
reasonable forecast of damages for the harm that is caused
by the breach, are referred to as penalty clauses.

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Limited liability clause
 A limitation of liability clause (sometimes referred to
simply as a liability clause) is the section in a contracted
agreement that specifies the damages that one party
will be obligated to provide to the other under terms
and conditions stipulated in the contract.

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Limited liability clause
 In a legal context, a liability is generally a responsibility to
compensate for some failure to perform according to an
established or agreed-upon stipulation.
 Because there is an element of risk inherent in most
business agreements, limitation of liability clauses are
common in all areas of contract law.

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The termination of a contract
 Contract termination is legally ending the contract
before one or more of the parties have met their agreed
obligations.
 Only the parties that have signed the contract can
terminate the contract.

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The termination of a contract
 Termination and Discharge of Contracts Discharge of a
contract implies termination of the contractual relationship
between the parties.
 On the termination of such relationship, the parties are
released from their obligations in the contract.
 In this way the contract comes to an end. In other words,
a contract is said to be discharged when the rights and
obligations created by the contract are terminated.

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The termination of a contract
 1By performance
 2. By mutual agreement
 3. By supervening impossibility
 4. By operation of law [ death, insolvancy]
 5. By lapse of time
 6. By material alteration
 7. By breach of contract

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1. Discharge of Contract by Performance:

 This is the most popular and usual way of discharging the contract. Performance
means accomplishing of that which is required by a contract. This may be of two
types:
 i. Actual performance: When both the parties do what they have promised to do,
the contract is said to be performed. In this way both parties get released from
their obligations in that contract, and the contract comes to an end.
 ii. Attempted performance: when the promisor is ready and willing to perform
his promise, but the promisee refuses to accept the performance, it is known as
attempted performance.
 An attempted performance, to be legally valid, must have the following
requirements:
 a. It must be unconditional
 b. It must be made at reasonable place and time.
 c. Reasonable opportunity to ascertain capability.
 d. Reasonable opportunity for inspection of goods.
 e. It must have been made to the promisee or proper person.
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2. Discharge of contract by
agreement:
 A contract is formed when the parties mutually agree on a
matter. In the same way both the parties of a contract may
by mutual agreement discharge the contract.
 1) Novation - Section 62 a) Substitution of a new contract
in place of the existing contract is known as “Novation of
Contract”. b) It discharges the original contract

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2) Alteration - Section 62

 a) Alteration means change in one or more of the terms of

the contract.
 a) In case of novation there may be a change of the
parties, while in the case of alteration, the parties remain
the same.
 b) But there is a change in the terms of the contract.
 c) Alteration can take place only with the consent of all
the parties

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3) Rescission - Section 62
 It means the cancellation of the contract.
 4) Remission – Section 63
 It means the acceptance of lesser fulfilment of the terms
of the promise
 Example: Salman has borrowed ` 500 from Aishwarya.
Salman agrees to accept ` 250 from Aishwarya in
satisfaction of the whole debt. The whole debt is
discharged.

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5) Waiver - Section 63
 Waiver means giving up or foregoing certain rights. When
a party agrees to give up its rights, the contract is
discharged.
 Example: A promises to paint a picture of B. B afterwards
forbids him to do so. A is no longer bound to perform the
promise

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Continue
 3. Discharge of contract by supervening impossibility:
 A contract is discharged due to supervening impossibility
under the following situations: this is void contract.
 i. Destruction of subject matter of contract
 ii. Non existence or non occurrence of a particular state of
things
 iii. Change of law or stepping in of a person with
statutory authority.
 iv. Death or personal incapacity of the party.
 v. Declaration of war.

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Continue
 4. Discharge of contract by operation of law A contract
may also be discharged by the operation of the law. In
these cases, the law comes into force and the parties are
released from their obligations in the contract.
 Following are the instances where the contract is
discharged by an operation of law:
 i. Death of promisor
 ii. Insolvency
 iii. Merger
 iv. Loss of evidence

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 5. Discharge of contract by lapse of time The contract
must be performed within a stipulated period of time or a
reasonable period of time. If not, the contract will be
discharged. Provisions regarding the time factor are
provided in the Indian Limitation Act

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 6. Discharge of contract by material alterations A contract
is also discharged when the promisee or his agent makes
any material alteration, without the consent of the other
party, in the document containing the contract and its
terms and conditions

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 7. Discharge of contract by breach of contract Breach of
contract means refusal of performance on the part of the
parties.
 That means failure of a party to perform his or her
obligation under a contract. Breach of contract can be
actual breach or anticipatory breach.
 Where a person repudiates a contract before the stipulated
due date, it is anticipatory breach. In both the events, the
party who has suffered injury is entitled for damages.
 Further he is discharged from performing his part of the
contract.

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 I. Anticipatory Breach of Contract Where the promisor
refuses to perform his obligation even before the specified
time for performance and signifies his unwillingness, then
there is an anticipatory breach.

 II. Actual Breach of Contract Where one of the parties

breaches the contract by refusing to perform the promise
on due date, it is known as actual breach of contract. In
such a case the other party to contract obtains a right of
action against the one who breached the contract.

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A) Anticipatory Breach of Contract
 As the name suggests, an anticipatory breach is a breach
of contract before the time of performance. So, if a
promisor denies to perform his promise and signifies his
unwillingness before the time for performance, then it is
an anticipatory breach of contract.
 . Peter enters into a contract with John on June 01, 2018.
As per the contract, Peter agrees to sell his guitar to John
on June 10, 2018, for an amount of Rs 5,000. However, he
sells this guitar to Oliver on June 07, 2018. Hence, it is an
anticipatory breach of contract due to Peter’s conduct.

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B) Actual Breach of Contract
 While an anticipatory breach is before the time of
perfromance, an actual breach of contract is on the
scheduled time of performance of the contract. An actual
breach of contract can be committed either:
 1] At the time when the Performance of the Contract is
Due Peter enters into a contract with John promising to
deliver 50 bags of cotton to him on June 30, 2018.
 However, on the scheduled day, he fails to deliver the
same. This is an actual breach of contract. Also, this
breach is at the time the performance of the contract is
due.

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cancellation
 What is cancellation of a contract?
 Cancellation is the act of destroying a document by
making lines through it, tearing it up, or defacing it
with the intention of rendering it void.
 In contract law, cancellation happens when a party to a
contract ends the contract due to the other party's breach.

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