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This Act was moulded by the English Courts, on the basis of the principle of
contract, established by the common law and equity.
Common Law is an evolved law, unwritten law the body of law developed
gradually as a result of custom and judicial decisions, as distinct from the
law laid down by legislative assemblies. It forms the basis of all law that
is applied in England. Equity, a Latin word, from Aequitas = fair justice =
according to natural law or natural justice.
Meaning of Contract
• Derived from the Latin ‘contractum’ meaning ‘drawn together’
• It denotes drawing together of two or more minds to form a common
intention giving rise to an Agreement
Definition u/s 2
• Built upon a series of definition of the elements which go to make a
contract..
• Contract: an agreement enforceable by law.
• Agreement: every promise and every set of promises, forming the
consideration for each other, is an agreement.
• Promise: when one person to whom the proposal is made, signifies his
assent thereto, the proposal is said to be accepted. (Promisor and
promisee)
Contract
Bilateral Contract
• Bilateral contract is one where the obligation on the part of both the
parties to the contracts are outstanding at the time of formation of the
contract; similar to executory contract.
Agrement in Restraint of Marriage
• If the LAW has restrained a Trader’s mode of doing things, that law must
be obeyed.
• But no power short of the general law ought to restrain his free
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discretion.
• However, contracts which are only in partial restraint of trade are good.
• A contract not to carry on the business of an fishmonger or ironmonger
Essential elements
Intention to create legal obligation:
Obligation
• An obligation is the legal duty to do or abstain from doing what one has
promised to do or abstain from doing.
• A contractual obligation arises from a bargain between the parties to the
agreement who are called the promisor and the promisee.
• A contract is an exchange of promises by 2 or more persons, resulting in
an obligation to do something, which obligation is recognized and
enforced by law.
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•Express contracts are those in which the fact of the agreement can be
proved by words, written or spoken, which express the intention of the
parties.
Implied / tacit / interference Contracts
• Sec. 9 deals with it
Implied contract
• A delivers a bag of rice by mistake at B’s house, instead of C. Here B is to
return or pay to A. In this transaction there is no contract, no offer or
acceptance, but an implied contract..
• Also called ‘quasi contract’ –
• ‘certain relations resembling those created by contract’
Quasi Contracts
• Quasi = having some resemblance / almost but not quite: resembling
somebody or something in some ways, but not exactly the same
• E.g.: a quasi support group, a quasi definition, a quasi success, quasi lien
…
Quasi contract
• For a valid contract, there must be offer and acceptance, capacity to
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Unjust Enrichment
• Unjust enrichment, if proved, always triggers an obligation to make
restitution. It never triggers an obligation to pay compensation because
such an obligation might leave the defendant, who is normally entirely
innocent, out of pocket.
Quasi contract
Types:
Necessaries supplied to person incapable of contracting:
e.g. contract with minor or person of unsound mind are void.
But section 68 provides that the amount is recoverable from the property,
if any, of the incapable person and not from him personally.
Quasi contract
Suits for money received: u/s 69
The right to file a suit for recovery of money may arise:
Where the plaintiff paid money to the defendant under mistake, coercion,
extortion etc.
Money obtained by defendant from third parties. E.g. an Agent has
obtained a secret commission from a third party, the principal can
recovery the amount from the Agent.
Quasi contract
Quantum meruit = as much as earned or reasonable remuneration.
remuneration.
QUANTUM MERUIT
• Quasi contracts are made possible by the doctrine of QUANTUM MERUIT,
which allows courts to imply a contract where none exists. Quantum
meruit includes implied-in-fact contracts as well as quasi contracts.
• Courts also use the term quantum meruit to describe the process of
determining how much money the charging party may recover in an
implied contract.
Quasi contract
Obligation of a finder of last goods: u/s 71
The finder must take as much care of the goods as a man of ordinary
prudent man would take of his own goods , his position is that of a
bailee. And the finder is entitled to get reward that may have been
offered by the owner and also any expenses he may have incurred in
protecting the goods
Quasi contract
Obligation of a person enjoying benefit on non-gratuitous act:
Where a person lawfully does something for another person or delivers
anything to him with out any intention, and the other person has
accepted it, that person must compensate him
Restitution
• The underlying principle is that a person who has been unjustly enriched
at the expense of another is required to make restitution to that other.
Key elements of quasi contracts
• 1-Plaintiff rendered valuable goods / services to Defendant with a
reasonable expectation of being compensated;
• 2-Defendant knowingly accepted the benefits of the goods / services;
and
• 3-Defendant would be benefited by the services / receiving the goods.
Unilateral contracts
• Unilateral is a one-sided contract, but does not mean that a contract
made by one party, but only ONE party is bound
• Here, a promise by one party is exchanged for an act on the other side.
• The promise to give a reward to the person who finds out a lost things,
forms a ‘unilateral contract...
made a serious offer. People had given good consideration for it by going
to the "distinct inconvenience" of using a faulty product.
• Lord Justice Lindley, "here is a distinct promise expressed in language
which is perfectly unmistakable".
Bilateral contracts
• In a bilateral contract a promise on one side is exchanged for a promise
on the other side.
•In a bilateral contract of sale, the seller may promise to deliver the
goods on a subsequent day in return for a promise by the purchaser to
pay the price.
Combinations
• 1- a promise and an acceptance -- a gift
• 2- an act offered in return for a promise – e.g. railway porter's service;
acceptance giving rise to promise his wage
• 3- Promise offered for an act – e.g. offer of reward for bringing back a
lost article
• 4- an offer of a promise to do anything, accepted by a return promise –
e.g. offer to sell anything for a price
Void contracts
• A contract without any legal effect is a void contract – Here the contract
ceases to be enforceable by law; becomes void when it ceases to be
enforceable
• It is a nullity in the eye of the law- can not be enforced and it confers no
right on either party.
Illegal contracts
• A very difficult term to define ...
• A contract contrary to criminal law; illegal contracts like agreements to
commit a crime, to defraud the revenue, contract with an alien enemy..
unlawful laws
Offer and Acceptance
• A contract is defined as a promise or agreement enforceable by law.
• The important elements are-
``an agreement and the legal obligation created thereby.
• A contract is a two-sided bargain which can be concluded by the actions
of both parties.
Offer
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Offer
Future or Executory
Consideration
• When consideration from one party to the other is to pass subsequently
to the making of the contract, it is a Future consideration.
• E.g.. D promises to deliver certain goods to P after a week. P promises to
pay the price after a fortnight.
• The promise of D is supported by promises of P; it is Executory
Consideration.
Capacity of parties – s 10, 11, 12
• S-10 -The parties to a contract must be competent to contract
• S-11 - every person is competent to contract who is of the age of
majority, who is of sound mind and who is not disqualified from
contracting by any law ..
• S- 12- explains the circumstances in which person will be said to be of
should mind for the purpose of entering into a contract
Capacity of parties
• Drunkenness
• Mistake may be said to arise when the parties have not meant the same
thing,
or one or both, while meaning the same thing, may have formed untrue
conclusions about some of the essential element in the agreement.
It is grouped into :
1- mistakes in the expression of the contract
2- mistakes as to the motive for entering into the contract
3-mistake as to the nature or contents of it
4- mistake as to the identity of the contracting parties.
Mistake
u/s 20
• The mistake must be of both the parties-common and not unilateral
• It must be a mistake of fact and not of mistake of law
• It must be about a fact essential to the agreement
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Coercion - u/s 15
• Free consent of parties is essential ...
• Consent is said to be free when it is not caused by coercion, undue
influence, fraud, misrepresentation or mistake.
• ‘coercion’ is the committing, or threatening to commit any act forbidden
by the IPC, or the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.
undue influence
u / s -16
• It is an equitable doctrine.
• Where a confidential relationship exits between the parties, undue
influence between the parties will be presumed to have been exercised
by the party in who confidence it was reposed by the other.
• E.g.. Parent and child
• Guardian and ward
• Advocate and client
• Doctor and patient
• Spiritual Adviser and disciple
Wagering contracts -u/s 30
• A wager means a bet.
• The subject matter may be anything – either gain or loss, wholly
dependent on an uncertain event
• In India, agreement by way of wager are void – no suit shall be brought
for recovering anything alleged to be won on any wager
Exception
Doctrine of Frustration
• Frustration may be defined as –
the premature termination of an agreement between parties lawfully
entered into and
in the course of operation at the time of its premature termination,
owing to the occurrences of an event, so fundamental as to be regarded
by the law as striking at the root of the agreement, and as entirely
beyond what was contemplated by the parties when they entered into
the agreement.
The Doctrine of Frustration
• It describes a situation where after the conclusion of a contract,
unforeseeable events occur, rendering the performance of that contract
impossible.
• Under that doctrine, courts have the power to discharge any contract
that falls within its scope as "frustrated".
• Courts nowadays seem to be reluctant when it comes to discharging
contracts as frustrated. The current policy on such matters is to prevent
parties from using the doctrine as a defence protecting them from a bad
bargain.
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Doctrine of Frustration
• Frustration = a feeling of disappointment
• Non-occurrence of a particular event – the ‘coronation case’ –
• The plaintiff Krell had agreed to let a flat to the defendant Hentry for
June 26 and 27, 1902, to view the coronation procession of King Edward
VIII.
• The rent had not become payable when the procession was abandoned.
• The Court held that he could not recover the rent
Doctrine of Frustration
If a contract is made, and for whatever reason it later becomes impossible
to for one party to perform their obligations, then it is case of
frustration.
• it should be noted that frustration is about subsequent impossibility; if a
contract was impossible to perform right from the outset, then the issue
is one of mistake and not frustration.
Supervening illegality
• Since the contract was made, a new law has made it illegal to carry it
out.
• In Avery v Bowden (1856), where a ship was supposed to pick up some
cargo at Odessa. With the outbreak of the Crimean War, the government
made it illegal to load cargo at an enemy port, so the ship could not
perform its contract without breaking the law.
• The contract was therefore frustrated.
Doctrine of Frustration
• Further performance rendered impossible.
the key reasons:
– Destruction of the subject matter:
– e.g. I agree to sell you my house, but then my house burns down.
– The non-availability of a party, due to death, illness, or other
exceptional circumstances.
– e.g. you hire a singer to play at a party, but the singer is taken ill and
can’t perform.
DISCHARGE OF CONTRACT
• Contracts may be discharged or terminated by any of the following
modes:
• Performance of the contract
• Mutual consent or agreement
• Lapse of time
• Operation of law
• Impossibility of performance and
• Breach
• (discharge=carry out or to complete a duty, responsibility or promise
successfully)
DISCHARGE OF CONTRACT
• 1-performance of the contract- -section 37 provides that the parties to a
contract must either perform or offer to perform their respective
promises, unless such performance is dispensed with or excused.
• In the case of death of the promisor before performance, the
representative of the promisor are bound to perform the promise unless
a contrary intention appears from the contract.
DISCHARGE OF CONTRACT
• Tender of Performance :S- 38
• It is sometimes sufficient if the promisor performs his side of the
contract.
• Then, if the performance is rejected, the promisor is discharged from
further liability.
DISCHARGE OF CONTRACT
• Tender of Performance :S- 38
• To be valid, a tender must fulfill the following conditions:
• It must be unconditional
• It must be made at a proper time and place
DISCHARGE OF CONTRACT
• Discharge by mutual consent or agreement – u/s 62 and 63:
• An agreement may be discharged by the agreement of all parties to the
contract or waiver or release by the party entitled to performance.
• It takes various forms – e.g.. Novation, where a new contract is
substituted for an existing contract.
DISCHARGE OF CONTRACT
DISCHARGE OF CONTRACT
• Discharge by Operation of Law: Discharge under this head may take
place as follows:
-by unauthorized alteration of items in a written document: where a
party to a written contract makes any material alteration, the other
person can avoid it.
- by insolvency: the Insolvency Act provides for discharge of contract
under particular circumstances
Rescission
• When a party has broken a contract, the other party may treat the
contract as rescinded and he is free from all his obligations.
•Under Sec. 65, when a party treats the contract as rescinded, he himself
liable to restore any benefits he has received under the contract to the
party from who such benefit were received.
Damages
• Damages u/ 73:
• The person injured by a breach of contract can claim damages from the
other party for compensating the loss suffered.
• .The loss or damages depends on specific circumstances of each event.
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Damages u / s 74
Unliquidated Damages
Unliquidated Damages:
• -2- special damages – are those resulting from breach of contract under
some peculiar circumstances.
• If at the time of entering into the contract, the party has given notice of
special circumstances which makes special loss, the likely result of the
breach in the ordinary course of things.
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• Then upon the breaking, the contract and the special loss following the
breach, he will be required to make good the special loss.
Unliquidated Damages:
• E.g. A delivered goods to the Railway, told specifically that if the goods
did not reach the destination for an exhibition-purpose, on the stipulated
time, he would suffer special loss. The goods reached late.
• A can claim special damages.
Unliquidated Damages
• -3- Exemplary Damages are awarded with a view to punishing the
defendant, and are not as a rule, granted in case of contract.
Unliquidated Damages
• E.g.1- breach of promise to -3- Exemplary Damages are awarded with a
view to punishing the defendant, and are not as a rule, granted in case
of contract.
• Marry
• - 2-wrongful dishonor of a customer's Cheque by the banker
Unliquidated Damages
• -4-Nominal Damages consist of a small token award,
• e.g.. A single rupee, where there has been an infringement of a
contractual right, but no actual loss has been suffered
Specific Relief
• 1- Specific Performance:
• The injured party may obtain a decree for specific performance of the
contract..
• For e.g. in the case of immovable property, the court may interfere to
recover it for the injured party.
• 2 – Mandatory Injunction: The court will direct the party to do some act
as per the agreed contract.