CONTRACT ACT

Basics of Contract Act

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 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,
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 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
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 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 obtain 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 :
 A Minor is not competent to contract, hence
a contract with Minor is Void.
 The agreement cannot be ratified by the
Minor on attaining majority.
 Minor can be beneficiary
 Minor can not be asked to refund the
benefit, profit enjoyed by him. (s65)
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 A Minor can always plead minority.
 A Minor cannot be a partner in any
Partnership Firm
 A Minor can act as Agent.
 Minor’s parent cannot be liable to Minor’s
creditor for the breach of contract.
 A Minor’s estate is liable to a person who
supplies necessaries of life to a Minor.
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Discharge of Contract :
 By Performance
 By Mutual Consent :
– Novation
– Rescission
– Alteration
– Remission
– Waver
– Merger
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 By Subsequent Impossibility i.e. Doctrine
of Frustration:
– Destruction of subject matter
– By Death or disablement of the parties
– Subsequent illegality
– Declaration of war
– Non existence or non occurrence of a particular
state of things
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 Exception to the Doctrine of Frustration :
– 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 Operation of Law:
– By Death : ( Personnel skill)
– By Insolvency
– By 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
» Ordinary Damages – Usual course of business; Diff.
bet. contract price and market price
» Special Damages-Loss of profit
» Vindictive Damages – to punish the defaulter.
( Marriage and S138 of NIA)
» Nominal Damages – only technical violation but no
loss
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» Liquidated Damages – predetermined amount
» Interest
– Specific performance
– Injunctions
– Quantun Meruit
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 Quasi Contract