1

CONTRACT LAW - 1

Acontractmaybedefinedasanagreementmadebetweentwoormorepartiesthatisenforceableat
law.Itisalegalconcept.Itcomesintoexistence,inalegalsense,whenthepartieshaveestablishedall
oftheelementsthatmakethecontractenforceable.
Pollock
Everyagreement&promiseenforceableatlawisacontract
Salmond
Acontractisanagreementcreating&definingobligationbetweentwoparties

Anoffermustgothrough
multiplestages
beforeitbecomesavalidcontractasshownbelow.

Offer=Statement+Intentiontocreatealegalrelationship.
Promise=Offer+Acceptance
Agreement=Promise+Consideration
Contract=Agreement+EnforceablebyLaw

Essentialelements
ofavalidcontractare
1. Anintentiontocreatealegalrelationship.
2. Offer
3. Acceptance
4. Consideration
5. Legality
6. Capacitytocontract

Inadditiontothesebasicsixelements,certaincontractsmustbeinwriting,inanelectronicsubstitute
ortakeonaspecialformtomakeitenforceable.

Contractsmustalsobefreefromanyvitiatingelementssuchasmistake,misrepresentationorundue
influencetomakeitvalid&binding.
Intention to create a legal relationship

Anagreementbecomesacontractonlywhenthepartieshaveanintentiontocreatealegalrelationship.
Alegalrelationshipisone,whichconsistsofrightsandobligationswhichcanbeclaimedbypartiesin
thecourtoflaw.Forexample,agreementsonsocialordomesticnaturearenotvalidcontracts.(
Balfour
VsBalfour
)

Offer or Promise
Astatementmadebyapartywithanintentiontocreatealegalrelationshipiscalledanoffer.It
isatentativepromisesubjecttoacondition.Avalidcontractrequiresanofferandsubsequent
acceptanceresultinginanagreementbetweentwoparties.Thatmeans,offeristhefoundationforany
validcontract.
Express
spokenorwritten
Implied
byconductorcircumstance.
Specific
offermadetoaparticularpersonorgroupofperson.
General
offermadetopublicingeneral
Cross
offermadetoeachotherwithsameterms&conditions.
Counter

Standing
offerallowedtoremainopenforacceptanceoveraperiodoftime.

Anofferis
effective
if
Offererhasanintentiontobeboundbyoffer.
Termsofofferarereasonablydefinite.
Offeriscommunicatedtotheofferee.

TheOfferer
mustcommunicate

theoffertotheoffereebeforeanacceptancetakesplace.Anoffercan
becommunicatedeitherpersonallyorbyletter,fax,emailorothermeansofcommunication.However,
theofferisnotvaliduntilitisreceivedbytheofferee.
AGoodSamaritan,whoreturnsalostgoldcant
claimareward,ifhedidntknowabouttherewardbeforehand
.

Anofferget
terminated
underdifferentconditions.
OperationsByLaw

ActionofParties

Whenthetimeiselapsed(Lapse)

Revokedbytheofferorbeforeoffereeaccepts.

Afterareasonabletime,iftimenotmentioned
intheoffer.

Offereemakesnewoffer(counteroffer)

Deathofeitherparty.

Offereerejectstheoffer.

Insolvencyofeitherparty.

Destructionofsubjectmatter.

Revocation
Meansterminationofanofferbynoticecommunicatedtotheoffereebeforeacceptance.
Anirrevocableoffercantbeterminatedbytheofferor.Irrevocableoffersarisethrough

Optionscontracts
Aseparatepromisetokeepanofferopenforaperiodoftime,eitherin
returnforsomecompensationorbecausethepromiseismadeinaformaldocumentunderseal.
(TokenMoney).
Detrimentalreliance
Offereealreadybookedaplaneticketorappliedforaloan&offeroris
awareofthesame.

Acceptance
Acceptanceisaresponsebythepersonreceivingtheofferthatindicatesthewillingnesstoenterinto
theagreementproposedintheoffer.
Acceptancemustbeabsolute&unqualified.
Acceptancemustbecommunicated.Meresilenceisnotacceptanceoftheoffer.
Acceptancemustbegivenonlybythepersontowhomtheofferismade.
Acceptancemustbeintheprescribedmodeormanner.
Acceptancemustbewithinareasonabletime.

Acceptancecanbeoral,writtenorimplied(byacts,forexamplesendingthegoodstoofferorfora
purchaseorder).Offerorcanspecifythemeans,manner&timeofacceptance.

Iftheacceptanceisspecifiedtobe
oralmeans
,theacceptancewouldbecompletewhenitis
communicatedbytheoffereeeitherbytelephoneorwhentheoffereemeetswiththeofferorandspeaks
thewordsofacceptancedirectlytotheofferor.

Iftheacceptanceisspecifiedtobe
post
,theacceptanceoftheoffertakeplacewhentheletterof
acceptance,properlyaddressedandthepostagepaid,isplacedinthepostboxorpostoffice.

An
electronicdocument
isdeemedtobesentwhenitenterstheinformationsystemoutsidethe
senderscontrol.

The
place

whereanofferismadeandtheplacewhereacceptanceoccurshasalwaysbeenasignificant
determinantofthelocationofthecontractandthejurisdictionthatgovernsit.

Consideration
Considerationissomethingthathasvalueintheeyesofthelaw
(ThomasvsThomas,JusticePatterson)
andwhichapromisorreceivesinreturnforapromise.

IfAagreestosellhishousetoBfor50,000/,theconsiderationforAis50,000/andforBspromise,
theconsiderationisthehouse.

Considerationcantakemanyformslike
Paymentofmoney.
Performanceofaparticularservice.
Apromisenottodosomething.
Relinquishmentofaright.
Deliveryofproperty.

Unlessapromisorgetssomethinginreturnforhisorherpromise,thepromiseismerely
gratuitousor
voluntarypromise
.Apromisewithoutconsiderationcanbeconsideredonlyasagift.

Essentialsofconsiderationare
1. Considerationmaybepast,presentorfuture.
2. Considerationmustbereal.
3. Considerationmustbelawful.
4. Considerationneednotbeadequate.ContractActdoesnotprovideforanyquantum,just
stipulatesthatacontractshouldbesupportedbyconsideration.
5. Considerationmustbesomethingwhichthepromisorisnotboundtodo.Apromisetoperform
apublicdutybyapublicservantisnotaconsideration.

Agivenconsiderationor
object
is
unlawful
,ifit
Forbiddenbylaw.
Opposedtoanypublicpolicy.
Fraudulent
Involvesorimpliesinjurytoapersonorpropertyofanother.
Immoral

Exceptions
Anagreementinwritingandregisteredunderthelaw,whichismadeonaccountofnaturallove
andaffectionbetweenpartieswhoareinarealrelationtoeachotherisvalidwithoutany
consideration.
Promisetocompensateapersonwhohasalreadydonesomethingvoluntaryisenforceableeven
withoutconsideration.
Promisebyadebtortopayatimebarreddebtisenforceableprovided,itismadeinwritingand
issignedbythedebtororhisagent.Atimebarreddebtmeansadebtwhichremainsunpaidfor
aperiodofthreeyears.
Noconsiderationisrequiredtocreateanagencyasthedutyofagentisonlytobringtheparties
ofcontracttogether,
Capacity to Contract
Partiesinvolvedinacontractmusthavelegalabilitytomakeacontract.
Oftheageofmajority.
Ofsoundmind.

Notdisqualifiedfromcontractingbyanylawshouldntbeinsolvents,convictsoralien
enemy.
Legality
Acontractmaybeoralorwriting.Whereaparticulartypeofcontractisrequiredbylawtobein
writing&registered,itmustcomplywithnecessaryformalitiesofwriting,registration&attestation.If
thelegalformalitiesarenotcarriedout,thenthecontractisnotenforceablebylaw.
Free Consent
Freeconsentisanessentialrequirementofavalidcontract.Consentmeansagreementbetweenthe
partiesuponthe
samethinginthesamesense
.Aconsentissaidtobefreewhenitisnotcausedby
Coercion(physicalcoercion)
Undueinfluence
(mentalormoralcoercion)
Fraud
Misrepresentation
Mistake
Intheabsenceoffreeconsent,thecontractmaybevoidorvoidabledependinguponthenatureofflaw
intheconsent.Bilateralmistakemakethecontractvoidabinitio,
Meresilencedoesntamounttofraudormisrepresentationunlessthereisanintentionto
deceive.
Mistakes
Mistakeisanerroneousbeliefconcerningsomethingandisoftwokinds.

MistakeofLaw
Ignoranceoflawisnoexcuse.
Bilateralmistake
Sincethereisabsenceofconsent,thereisnocontractatall.Thecontractis
voidabinitio.
Unilateralmistake
Acontractremainsvalidunlessthemistakeiscausedbymisrepresentation
orfraudandisvoidableattheoptionofaggrievedparty.
Lawful Object
Theobjectmustbelawfulinordertomakeacontractvalid.

Types of Contract
Therearenumeroustypesofcontracts.Theyarecategorizedbasedonlegaldistinctionsastotheir
formation,performance&enforceability.

ValidContract
Acontractthatsatisfiesallthelegalrequirementsisknownasavalidcontract.A
validcontractisenforceablebeforelaw.

Ifoneormoreoftheessentialelementsarenotpresent,thenthecontractmaybevoid,voidableor
unenforceable.
VoidItisnotacontractandsohasnolegaleffect.
VoidableItisacontractthatisbindingononepartybuttheotherpartyhastheoptiontohave
itsetaside.Untilthecontractissetaside,itistreatedasavalidcontract.Forexample,contracts
madebyminorsarevoidableattheoptionofminor.Coercion,undueinfluence,fraud,
misrepresentationetccanmakeacontractvoidable.

Aliownsacomputersystem.TimpurchasesAliscomputersystemwithaforgedchequefor6,000
(contract1).LaterthatdayTimsellsthecomputertoBrendafor5,000(contract2).Timdisappears
withBrendas5,000.AlitriestorecoverhiscomputersystemfromBrenda.
Ownershipdoesnotpassinvoidcontracts.
Ownershipmaypassinvoidablecontract.

UnenforceableContract
Whereacontractisgoodinsubstance,butbecauseofsometechnical
defect,oneorbothpartiescantsueupon.Anagreementwhichisrequiredtobestampedwillbe
unenforceableifthesameisnotstampedatallorisunderstamped.

IllegalContract

Acontractwhereconsiderationorobjectisunlawful.Allillegalcontractsarevoid,
butallvoidcontractsarenotnecessaryillegal.IfAagreestogetanappointmentforBinthegovt
serviceifhepaysasumof1lakh,itisanillegalagreement.

Express
Inanexpresscontract,thetermsoftheagreementarefullyandexplicitlystateinwords,oral
orwritten.Asignedleaseforanapartmentorhouseisanexpresswrittencontract.

Implied
Acontractthatisimpliedfromtheconductofthepartiesorcircumstancesiscalledan
impliedcontract.Ifapersonentersintoapublictransportandoccupiesaseat,thenitisimpliedthatthe
personhasenteredintocontractandisboundtopaythefareofthejourney.

Quasi
Contractswhicharecreatedbythelaw.Thistypeofcontractisneitherwrittennorspokenor
bytheconductoftheparties.IfMr.AleaveshisgoodsatMr.Bsshopbymistake,thenitisforMr.B
toreturnthegoodsortocompensatetheprice.

Executed
Acontractthathasbeencompletelyperformedbybothparties.Acontractstobuyacar
fromBbypayingcash,Binstantlydelivershiscar.(Cashsale)

Executory
Acontractthathasnotasyetbeenfullycompleted.DagreestobuyVscycleby
promisingtopaycashon15thJuly.Vagreestodeliverthecycleon20thJuly.

Bilateral
Bothpartytakesonsomesortofobligationusuallypromisingtodosomethinginreturnfor
apromisetodosomethingfromtheotherparty.AshwinapromisestosellhercartoBejalfor2,000&
BejalpromisestogiveAshwina2,000inabilateralcontract.

Unilateral
Onepartypromisestodosomethingusuallyinreturnforcompletionofaspecifiedactbut
occasionallyforrefrainingtoact.Theotherpartydoesnothavetopromisetocarryouttheact.Carl
offerstopayarewardof500ifhislostpetpythonisreturnedtohimisaunilateraloffer.Ifanyone
returnsthepython,thenCarlisobligedtopaythereward(aunilateralcontractisformed).However,no
oneneedundertaketolookforthepythonandreturnit.

Formalcontracts
arecontractsthatrequireaspecialformormethodforcreationtobeenforceable.
ExamplesareNegotiableInstruments,Lettersofcreditetc.
Informalcontracts
arecontractsthatdoesnt
requireaspecifiedformorformalitytobevalid.
EContract
Contractenteredviatheinternet.

Discharge of Contracts
Dischargeofacontractmeansterminationofcontractualrelationbetweentheparties.Thatmeans,a
contractisdischargedwhentherightsandobligationscreatedbyitarecometoanend.
1. Byperformanceactualorattempted.
2. ByoperationsoflawDeath,Merger,Insolvency,Unauthorizedalteration.
3. Bybreachofcontractactual,anticipatory
4. BymutualagreementNovation,Alteration,Rescission,Remission
5. Bylapseoftime.
6. Byimpossibilityofperformance

DischargeofContractbyPerformance
ActualPerformanceBoththepartiesperformed.
AttemptedPerformanceWhenthepromisorisready&willingtoperformhispromise,butthe
promiseerefusestoaccepttheperformance,itisknownasattemptedperformance.Thisis
legallytreatedasequivalenttoactualperformanceexceptincaseofpaymentofmoney.

DischargeofContractbyOperationofLaw
DeathApromisestoperformadanceinBstheatre.Adies.Thecontractcomestoanend.
InsolvencyAcontractstosell100bagsofsugartoB.Duetoheavylossbyamajorfirewhich
leavesnothingtosell,Aappliesforinsolvencyandisadjudgedinsolvent.Contractis
discharged.
UnauthorizedalterationAagreesuponaPromissoryNotetopayRs.5,000toB.Btheamount
asRs.50,000.AisliabletopayonlyRs.5,000.
MergerAtookalandonleasefromB.Subsequently,Apurchasesthatland.Abecomes
ownerofthelandandownershiprightsbeingsuperiortorightsofalessee,theearliercontract
ofleasestandsterminated.

DischargebyBreachofContract
Breachofcontractmeansrefusalofperformanceonthepartoftheparties.Thatmeans,failureofa
partytoperformhisorherobligationunderacontract.
ActualbreachActualbreachofcontractoccurswhenthepartydoesnotperformhispromise
ontheduedate..

AnticipatorybreachWhenthepartydeclareshisintentionofnotperformingthecontract
beforetheperformanceisdue.

DischargeofContractby
MutualAgreement
NovationSubstitutionofanewcontractintheplaceoftheoriginalcontract.
AlterationChangeinoneormoreofthetermsofacontractwithmutualconsentofparties.
RescissionCancelallorsomeofthetermsofthecontract.
RemissionAcceptingalesserconsiderationthanagreedinthecontract.(partperformance)

DischargeofContractbyLapseofTime
AsperIndianLimitationAct,theperiodoflimitationsforcontractsis3years.Afterthestipulated
expiryofthisperiod,thecourtwillnotallowenforcementofthecontractanditwillbedischarged.

DischargebySupervisingImpossibility
Destructionofsubjectmatter.
Nonexistenceornonoccurrencesofaparticularstateofthings.
Changeoflaworsteppinginofapersonwithastatutoryauthority.
Deathorpersonalincapacityoftheparty.
Declarationofwarcontractwithalienenemy.

Breach of Contract & Remedies

Remedymeanscourseofactionavailabletoanaggrievedpartywhenotherpartybreachesthecontract.

Suitfordamage
Meansmonetarycompensation.
OrdinarydamagesDirectloss.
SpecialdamageIndirectloss.Underspecialcircumstances,providedotherpartyisawareof
suchcircumstances.Parceldeliveredaftertheexhibition.
Damageforinconveniencephysicalinconvenienceormentalagony.Marriagephotographs.

Suitforspecificperformance
Whenmonetarycompensationisnotadequateoractualdamageisnot
measurable.AagreetosellB,anartistpaintingforRs.30,000.Lateron,herefusedtosellit.HereB
canfilesuitagainstAforspecificperformanceofthecontract.

SuitforInjunction
Itmeansstayordergrantedbycourt.Thisorderprohibitsapersontodoparticular
act.Wherethereisbreachofcontractbyonepartyandorder,ofspecificperformanceisnotgrantedby
court,injunctionmaybegranted.Example:FilmactressagreedtoactexclusivelyforWforayearand
fornooneelse.DuringtheyearshecontractedtoactforZ.

Rescissionofcontract
Rescissionistheunwindingofatransaction.Thisisdonetobringtheparties,
asfaraspossible,backtothepositioninwhichtheywerebeforetheyenteredintoacontract.Acourt
canrescindacontractifthecontractisvoidableorunlawful.

10

QuantumMeruit
Allowtherecoveryofvalueoflabor&material.Forinstance,mostprofessional
roofershiredtorepairaroofinsistonhavingaformalagreementwiththeownerofthehousebefore
beginningtherepairs.Intheabsenceofanagreementorformalcontract,theroofermaybeunableto
recoverlossesincourtifthetransactiongoesawry.Quantummeruitisajudicialdoctrinethatallowsa
partytorecoverlossesintheabsenceofanagreementorbindingcontract.

Indian Contract Act, 1872

PriortothisEnglishLawofContractwasfollowed.
Total11chapters.
2partsGeneralPrincipals(sections1to75)&Specialkindsofcontract(sections124to238).
GeneralPrincipalsappliestoalltypesofcontracts.
SpecialcontractsareIndemnity,Guarantee,Bailment,Pledge&Agency