Basics of 20Contract Act[1]

CONTRACT ACTCONTRACT ACT

Basics of Contract Act Basics of Contract Act

CONTRACTCONTRACT

Meaning and definition of Contract & other Meaning and definition of Contract & other relative terms such as Offer, Acceptance etc as per relative terms such as Offer, Acceptance etc as per Contract Act,1872. Contract Act,1872.

Elements and classification of ContractsElements and classification of Contracts Relevant provisions of the Act & casesRelevant provisions of the Act & cases Communication & Revocation Communication & Revocation Discharge of Contract Discharge of Contract Remedies for breach of ContractsRemedies for breach of Contracts PrecautionsPrecautions Special Contracts – agency; Special Contracts – agency; ContingentContingent, , minor, minor,

quasi,quasi, mortgage, mortgage,

CONTRACTCONTRACT

Agreement in daily lifeAgreement in daily life An Agreement is defined An Agreement is defined

in section 2 (e) of the Act in section 2 (e) of the Act is - a promise .is - a promise .

Promise – a proposal Promise – a proposal when accepted , becomes when accepted , becomes a promise. ( Sec 2 b).a promise. ( Sec 2 b).

Agreement = Offer + Agreement = Offer + AcceptanceAcceptance


Every Agreement is not a Contract.Every Agreement is not a Contract. AGREEMENT ENFORCEABLE IN LAW AGREEMENT ENFORCEABLE IN LAW

IS CONTRACT.IS CONTRACT. Contract : Agreement + enforceable by law. Contract : Agreement + enforceable by law.

i.e. i.e. legal obligationslegal obligations to do or abstaining to do or abstaining from doing anything. ( Social, illegal)from doing anything. ( Social, illegal)

All contracts are agreement but all All contracts are agreement but all agreements are not contractsagreements are not contracts


The Contract Act is the law of those The Contract Act is the law of those agreements which create obligation and agreements which create obligation and there is a legal remedy for the breach there is a legal remedy for the breach thereof.thereof.

Legal Contracts creates “Rights in Legal Contracts creates “Rights in Personam” as distinguished from Rights in Personam” as distinguished from Rights in Rem i.e. Rights against the whole world.Rem i.e. Rights against the whole world.

» Consensus-ad-idumConsensus-ad-idum


Essential of Contract:Essential of Contract: Agreement & Legal Obligation ;Agreement & Legal Obligation ; Section 10 : states elements of Contract which areSection 10 : states elements of Contract which are

– Agreement ( Offer+ Acceptance)Agreement ( Offer+ Acceptance)» Two parties ( Promisor & Promisee)Two parties ( Promisor & Promisee)

– Intention to create legal relationshipIntention to create legal relationship

– Free Consent ( Sec 13,14)Free Consent ( Sec 13,14)» Coercion(15), Undue Influence(16), Fraud(17), Coercion(15), Undue Influence(16), Fraud(17),

Misrepresentation (18) or Mistake ( 21-22)Misrepresentation (18) or Mistake ( 21-22)


Elements of Contract :Elements of Contract :– Parties competent to ContractsParties competent to Contracts

» Minor, unsound mind, disqualified by lawMinor, unsound mind, disqualified by law

– Lawful consideration Lawful consideration » ( Past , present, future, cash, kind, act, abstinence)( Past , present, future, cash, kind, act, abstinence)

– Lawful Object ( Not illegal/immoral)Lawful Object ( Not illegal/immoral)

– Agreements not declared void or illegal ( S 24-30)Agreements not declared void or illegal ( S 24-30)

– Certainty of Meaning (29)Certainty of Meaning (29)

– Possibility of performancePossibility of performance

– Necessary Legal FormalitiesNecessary Legal Formalities


Classification/Types of Contracts:Classification/Types of Contracts: Classification according to Enforceability :Classification according to Enforceability :

– Valid, Void & Voidable, Illegal, UnenforceableValid, Void & Voidable, Illegal, Unenforceable» Valid = section 10 elementsValid = section 10 elements» Enforceable at the option of one or more parties = VoidableEnforceable at the option of one or more parties = Voidable» Section 23-30 = VoidSection 23-30 = Void

Classification according to Formation Classification according to Formation – Express, Implied & Quasi JudicialExpress, Implied & Quasi Judicial

Classification according to Performance :Classification according to Performance :– Executed, Executory, Unilateral, BilateralExecuted, Executory, Unilateral, Bilateral


Precautions : Precautions : Elements of valid contractElements of valid contract DATE & PlaceDATE & Place Name of the Parties & status thereofName of the Parties & status thereof Signed by the Same Person or POA = Free Signed by the Same Person or POA = Free

consent. Sign on each page.consent. Sign on each page. Terms and consideration to be clearly definedTerms and consideration to be clearly defined All column to be filled upAll column to be filled up Modification or Over-writing to be initialedModification or Over-writing to be initialed


OFFER & ACCEPTACE :OFFER & ACCEPTACE : Offer – Section 2 (a) : Proposal ;Offer – Section 2 (a) : Proposal ; How an offer is made : Express =spoken, written How an offer is made : Express =spoken, written

Implied/by way of Conduct – Act or Omission Implied/by way of Conduct – Act or Omission General and Specific OfferGeneral and Specific Offer Essential of Valid Offer :Essential of Valid Offer :

– Must be made with a view to obtaining acceptanceMust be made with a view to obtaining acceptance– Must be made with the intention of creating legal Must be made with the intention of creating legal

relationrelation– Terms of offer must be definite, unambiguous & certain Terms of offer must be definite, unambiguous & certain

of capable of being made certain of capable of being made certain


Elements of OFFER: Elements of OFFER: – It must be distinguished from mere declaration It must be distinguished from mere declaration

of intention or invitation of offer. ( A Tender is of intention or invitation of offer. ( A Tender is an offer)an offer)

– It must be communicated to offereeIt must be communicated to offeree– The offer must not be contain a term the non-The offer must not be contain a term the non-

compliance of which may be assume to amount compliance of which may be assume to amount to acceptanceto acceptance

– Special TermsSpecial Terms– Cross offersCross offers


Termination/Lapse of OfferTermination/Lapse of Offer The offer lapses after stipulated or reasonable timeThe offer lapses after stipulated or reasonable time Death or insanity of the offeror or the offereeDeath or insanity of the offeror or the offeree Rejected by offereeRejected by offeree Revoked by OfferorRevoked by Offeror Not being accepted in the specified mode or Not being accepted in the specified mode or

reasonable manner.reasonable manner. Counter offerCounter offer


ACCEPTACE :ACCEPTACE : MeaningMeaning Acceptance how made and by whomAcceptance how made and by whom Elements of ACCEPTANCE :Elements of ACCEPTANCE :

– It must be absolute & UnqualifiedIt must be absolute & Unqualified– It must be communicated to the OfferorIt must be communicated to the Offeror– It must be according to the mode prescribedIt must be according to the mode prescribed– It must be given in specified timeIt must be given in specified time


ELEMENTS OF ACCEPTANCE:ELEMENTS OF ACCEPTANCE:– It must be in response to the OfferIt must be in response to the Offer– It must be made before the offer is lapses, It must be made before the offer is lapses,

terminated, withdrawn or revokedterminated, withdrawn or revoked– It must be given to the Offeror or its Authorized It must be given to the Offeror or its Authorized

Agents.Agents.


COMMUNICATION of Offer, Acceptance & COMMUNICATION of Offer, Acceptance & Revocation thereof.Revocation thereof.

Offer :The communication of offer is complete Offer :The communication of offer is complete when it comes to the knowledge of the person to when it comes to the knowledge of the person to whom it is made.whom it is made.

Acceptance : The communication of Acceptance is Acceptance : The communication of Acceptance is complete :complete :– Against the proposer – when it is put into a course of Against the proposer – when it is put into a course of

transmission so as to be out of power of the acceptortransmission so as to be out of power of the acceptor– Against the Acceptor – when it comes to the knowledge Against the Acceptor – when it comes to the knowledge

of the Proposer.of the Proposer.


Communication of Revocation : Communication of Revocation : The communication of revocation is The communication of revocation is

complete :complete :– Against the person who makes it – when it is Against the person who makes it – when it is

put into a course of transmission so as to be out put into a course of transmission so as to be out of power of the person who makes it.of power of the person who makes it.

– Against the person to whom it is made – when Against the person to whom it is made – when it comes to his knowledge.it comes to his knowledge.


Section 5 : Revocation of Offer & Section 5 : Revocation of Offer & Acceptance :Acceptance :

Offer : An offer may be revoked at any time Offer : An offer may be revoked at any time before the communication of its acceptance before the communication of its acceptance is complete as against the Proposer. is complete as against the Proposer.

Acceptance : An Acceptance may be Acceptance : An Acceptance may be revoked at any time before the revoked at any time before the communication the acceptance is complete communication the acceptance is complete as against the Acceptor.as against the Acceptor.


Contract with MINOR :Contract with MINOR : Indian Majority Act – not completed 18 years.Indian Majority Act – not completed 18 years. Law protects minor but no hardships to others.Law protects minor but no hardships to others. A Minor is not competent to contract, hence A Minor is not competent to contract, hence

a contract with Minor is Void-ab-intio.a contract with Minor is Void-ab-intio.– Mohri Bibi Vs Dharam Das Ghosh Mohri Bibi Vs Dharam Das Ghosh

Minor can be beneficiaryMinor can be beneficiary– Scooter, Raghav Vs Srinivas = mortgage in favour of MScooter, Raghav Vs Srinivas = mortgage in favour of M

The agreement cannot be ratified by the Minor on The agreement cannot be ratified by the Minor on attaining majority. attaining majority. ( Exception = Sindha Vs Abrahim = continuity of ( Exception = Sindha Vs Abrahim = continuity of service after majority)service after majority)

CONTRACT ACTCONTRACT ACT Minor can not be asked to refund the benefit, Minor can not be asked to refund the benefit,

profit enjoyed by him. (s65)profit enjoyed by him. (s65) A Minor can always plead minority, A Minor can always plead minority, (even if he (even if he

misrepresented his age – he will have to restore the property).misrepresented his age – he will have to restore the property). Minor’s parent cannot be liable to Minor’s Minor’s parent cannot be liable to Minor’s

creditor for the breach of contract, creditor for the breach of contract, however any contract however any contract entered into on behalf of Minor by the Parents can be enforced entered into on behalf of Minor by the Parents can be enforced provided it is in their authority and for the benefit of Minor.provided it is in their authority and for the benefit of Minor.

A Minor cannot be a partner in any Partnership A Minor cannot be a partner in any Partnership Firm except for profits.Firm except for profits.

A Minor can act as Agent.A Minor can act as Agent. Minor cannot be adjudged as an insolvent.Minor cannot be adjudged as an insolvent.


A Minor’s estate is liable to a person who A Minor’s estate is liable to a person who supplies supplies necessariesnecessaries of life to a Minor.of life to a Minor.– Necessary goodsNecessary goods

» Not only bread and clothes but may include watch, Not only bread and clothes but may include watch, bicycle etc.bicycle etc.

» Reasonably necessary to him having regard to his Reasonably necessary to him having regard to his life stylelife style

11 coats – not, Fur coat may be11 coats – not, Fur coat may be

– Necessary Services – Necessary Services – education, sports training etc.education, sports training etc.

– Loan for Loan for necessariesnecessaries


Discharge of Contract :Discharge of Contract : (means termination of contractual relationship, (means termination of contractual relationship, whereby all rights and obligations are created by it come to end.)whereby all rights and obligations are created by it come to end.)

By PerformanceBy Performance– Doing of what is required under contract, parties fulfills their obligation Doing of what is required under contract, parties fulfills their obligation

within time and manner prescribed therein.within time and manner prescribed therein.– Unilateral and bilateralUnilateral and bilateral– Actual and attempted performance Actual and attempted performance (only an offer to perform).(only an offer to perform).

By Mutual Consent ( Expressed or implied):By Mutual Consent ( Expressed or implied):– Novation : Novation :

» new contract substitutes the existing one, with consent of all the new contract substitutes the existing one, with consent of all the parties parties

» Same terms or better termsSame terms or better terms» Same parties or more parties – e.g. debtor, creditor and guarantor.Same parties or more parties – e.g. debtor, creditor and guarantor.» Should be done before expiry of the existing contractShould be done before expiry of the existing contract


– Rescission : Rescission : » All or some of the terms are cancelled with the mutual consentAll or some of the terms are cancelled with the mutual consent

» One party fail to perform; other party may rescind the contractOne party fail to perform; other party may rescind the contract

– Alteration : Alteration : change in the terms change in the terms

– Remission : Remission : discount, acceptance on lesser fulfillmentdiscount, acceptance on lesser fulfillment

– Waiver : Waiver : – Merger : Merger : inferior right merges into a superior rightinferior right merges into a superior right


By Impossibility of performance ( Doctrine of By Impossibility of performance ( Doctrine of Frustration):Frustration):– Impossibility at the time of execution of ContractImpossibility at the time of execution of Contract

» Known to the parties = Void ab-intioKnown to the parties = Void ab-intio» Unknown to the parties = void on the ground of mutual mistakeUnknown to the parties = void on the ground of mutual mistake

– Impossibility during the Term of the ContractImpossibility during the Term of the Contract» Void when it becomes impossible.Void when it becomes impossible.

In the following conditions which are beyond the control of the parties the In the following conditions which are beyond the control of the parties the contract is deemed to be discharged:contract is deemed to be discharged:

– Destruction of subject matterDestruction of subject matter– By Death or disablement of the partiesBy Death or disablement of the parties– Change of law Change of law – Declaration of warDeclaration of war– Non existence or non occurrence of a particular state of thingsNon existence or non occurrence of a particular state of things


Exception to the Doctrine of Frustration :Exception to the Doctrine of Frustration :» Impossibility as a rule is not an excuse for non Impossibility as a rule is not an excuse for non

performance except in the following circumstances:performance except in the following circumstances:

– Difficulty of PerformanceDifficulty of Performance– Commercial ImpossibilityCommercial Impossibility– Dependency on Third party ( Job Work)Dependency on Third party ( Job Work)– Strikes, lock out and civil disturbance, unless Strikes, lock out and civil disturbance, unless

there a force majure clause.there a force majure clause.– Failure of one of the objects.Failure of one of the objects.


Discharge by lapse of timeDischarge by lapse of time Discharge by Operation of Law:Discharge by Operation of Law:

– By Death : ( Personnel skill)By Death : ( Personnel skill)– By InsolvencyBy Insolvency– By unauthrised (unilateral) alterationBy unauthrised (unilateral) alteration– mergermerger

By Breach of Contract By Breach of Contract – Anticipatory Breach – repudiates before timeAnticipatory Breach – repudiates before time– Actual Breach – repudiates at or during the timeActual Breach – repudiates at or during the time


Remedy for Anticipatory breachRemedy for Anticipatory breach– Rescind and damagesRescind and damages– Specific performance & Specific performance & – InjunctionsInjunctions

Remedy for Actual breachRemedy for Actual breach– DamagesDamages– Time is the essenceTime is the essence


Remedies for Breach of Contract :Remedies for Breach of Contract :– Recession of the ContractRecession of the Contract– Damages ( Doctrine of Restitution)Damages ( Doctrine of Restitution)

» Ordinary Damages – Usual course of business; Diff. Ordinary Damages – Usual course of business; Diff. bet. contract price and market pricebet. contract price and market price

» Special Damages-Likely to arose (Loss of profit)Special Damages-Likely to arose (Loss of profit) Remote Loss/Quasi Contracts – no damagesRemote Loss/Quasi Contracts – no damages

» Vindictive Damages – to punish the defaulter. Vindictive Damages – to punish the defaulter. ( Marriage and S138 of NIA)( Marriage and S138 of NIA)

» Nominal Damages – only technical violation but no Nominal Damages – only technical violation but no lossloss


» Loss of reputation – only bankLoss of reputation – only bank

» Damages for inconvenience Damages for inconvenience

» Mitigation of damagesMitigation of damages

» Cost of DecreeCost of Decree

» Liquidated Damages – predetermined amountLiquidated Damages – predetermined amount

» Penalty ( Interest) Penalty ( Interest)

– Specific performanceSpecific performance– InjunctionsInjunctions– Quantun MeruitQuantun Meruit


Quasi ( Constructive) Contract :Quasi ( Constructive) Contract : Meaning – law of equity/restitutionMeaning – law of equity/restitution Contract created by lawContract created by law Kind of Quasi ContractsKind of Quasi Contracts

– Supply of necessaries ( S68)Supply of necessaries ( S68)

– Payment by interested person ( S 69)Payment by interested person ( S 69)» Protection of one’s interestProtection of one’s interest

» The payment should not be voluntary oneThe payment should not be voluntary one

» The payment should be such as that other party was bound by The payment should be such as that other party was bound by lawlaw


Kind of Quasi ContractsKind of Quasi Contracts– Obligation to pay for non-gratuitous acts (S 70)Obligation to pay for non-gratuitous acts (S 70)

» Act must have been done lawfullyAct must have been done lawfully

» Person doing the act should not have intended to do Person doing the act should not have intended to do it gratuitouslyit gratuitously

» Other person have enjoyed the benefit Other person have enjoyed the benefit

– Responsibility of finder of goods ( S 71)Responsibility of finder of goods ( S 71)– Mistake or Coercion (S 72) Mistake or Coercion (S 72)


Quantum meruit ( as much as earned)Quantum meruit ( as much as earned) When the original contract is dischargedWhen the original contract is discharged When :When :

– An agreement is discovered or become voidAn agreement is discovered or become void– Completion of work is prevented by other partyCompletion of work is prevented by other party– Contract is divisibleContract is divisible– Remuneration is not fixedRemuneration is not fixed

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Basics of 20Contract Act[1]