CONTRACT

Group 4
Anshu Kandpal-PGP10192
Sakshi TawarPGP10227
Santosh Mishra-PGP10228
Shweta Kumari- PGP10232
Tanay Loya- PGP10240
Chirag Anil Ved- PGP10244

1. Contract
Contract law gives the details of legislation and judicial decisions that give contracts their
legal powers. Knowledge of contract law is vital for anybody that wishes to enter into
contractual agreement to avoid falling into legal troubles and in business it is highly essential
to be aware of contract law in detail.

1.1 Nature of Contract Law

 Contract Law is a ‘POSITIVE LAW’ made by human agencies
 It is a branch of CIVIL LAW’ based on ‘common law system’
 It is contained in the CONTRACT ACT 1872
 Contract Act is a SUBSTANTIVE LAW dealing with contractual rights and
obligations of parties involved in commercial transactions
 Contract law is FACILITATIVE to help commercial parties formulate their
contracts in accordance with the general principles laid down in the Act
 Contract law does not apply to all types of contracts but only to those “agreements
which are enforceable at law”
 Contract law is not PRESCRIPTIVE i.e., it does not prescribe any penalties or
punishment in case of breach of contractual promise
 Contracting parties can frame the details of contract while remaining within the
purview of general principles of the law of contracts
 Law of contracts does not override customs and usages
Contract law is NOT A PROCEDURAL LAW. It provides rules for following FOUR aspects
relating to contract:
1. Formation of Contracts
2. Void Agreements
3. Performance (called ‘discharge’) of Contracts
4. Remedies for Breach of Contract
 2. Formation of Contracts
AGREEMENT is the starting point of a contract. Section 2(e) defines an ‘agreement’ as
‘an exchange of promises between two or more parties’. For making an agreement,
following FIVE things are needed:
1. There must be Two Parties
2. One of the parties invites other to make an Offer
3. Invited Offeror has the option to ACCEPT or reject the OFFER
4. Consensus ad idem i.e., identity of minds through OFFER &
ACCEPTANCE coinciding
5. INTENTION TO CREATE LEGAL RELATIONS which is presumed in
commercial transactions but must be proved in social transactions such as
promise made by husband to wife
2.1 Offer and Acceptance
 Offer: It is an expression of willingness for contract either to do or abstain from
doing something. It is done to obtain the assent of the other party. The party
making an offer should communicate it as any offer not communicated to the other
party is not considered for a valid contract.
 Acceptance: When the offer is communicated and the offree agrees to accept the
terms of the contract, then the offer is said to be accepted and a contract is formed.

3. Capacity of Contract
Capacity to contract means the legal competence of a person to enter into a valid
contract.The basic element to enter into a valid contract is that s/he must have a
sound mind. Certain class of people are exempted from the category of people
who are capable of entering into contract:
1. Infants/minors
2. Insane;
3. People under the influence of drug;
4. Bankrupt
5. Enemy alien
3.1 Free Consent
When entering into a contract, both parties in the contract must give their consent voluntarily.
If there are certain mistakes, or if one party attempts to deceive or pressure the other, consent
will not be considered voluntary or genuine.

Essentials of Free Consent

A consent is not considered free under Section 14 if the consent is caused under following
circumstance:
 Coercion: Section 15 of the Indian Contract Act,1972 defines Coercion as any act
which includes threat, unlawful detention or causing a threat of detaining property
of the other party with the view of obtaining his consent
  Undue Influence: Section 16 of the ICA,1872 states that the consent obtained
from the undue influence when the party is at the position to dominate the will of
another party and make an undue advantage over the other party.
 Misrepresentation: Section18 defines that when the party entered into the
contract and other party commits any with the intent to deceive breaches the duty
or caused the mistake without having intention it amounts to misrepresentation.
 Fraud: Section 17 defines fraud as when the party entered into the contract, the
other party tries to conceal the actual fact or provides such information which is
not true, or made such promises without any intention of fulfilling it.
 Mistake: There are two types of mistakes mentioned in Section 20 of the Indian
Contract Act,1872.
o Mistake of Fact includes
 Unilateral Mistake
 Bilateral Mistake – In Case of Bilateral Mistake the agreement
entered is void.
o Mistake of Law includes
 Mistake of Indian Law – In case of Mistake of Indian Law the
agreement entered is void.
 Mistake of Foreign Law

4. Void Agreement
An agreement not enforceable by law is said to be a void agreement. Some agreements
which have been specifically declared as void by the Indian Contract Act are:

1. The consent is caused by mistake

2. The consideration or object is unlawful
3. Agreements without consideration
4. Agreements in restraint of marriage, or in restraint of trade, or in restraint of legal
proceedings
5. Uncertain and ambiguous
6. Agreements by way of wager
7. To do impossible acts

5. Contingent Contract
A contingent contract is a contract that is dependent or conditional upon the happening
or non-happening of a future event or contingency. In a contingent contract there should
be some event collateral or incidental to the contract. The only chief element of a
contingent contract is that its performance is linked with the happening of a contingency.

5.1 Enforcement of Contingent Contract

The rules governing the enforcement of various kinds of contingent contracts are as
follows:

 Contracts contingent on an event happening

  Contracts contingent on the event not happening
 Contracts contingent on the future conduct of a living person
 Contracts contingent on happening of specified event within fixed time
 Contracts contingent on impossible event

6. Discharge of Contracts
A contract creates certain obligations on one or all parties involved. The discharge of a contract
happens when these obligations come to an end. There are many ways in which a contract is
discharged.
1. Discharge by Performance: The parties to a contract fulfil the obligations arising under
the contract within the time and manner prescribed, then the contract is discharged by
performance.
2. Discharge by Mutual Agreement: All parties to a contract mutually agree to replace the
contract with a new one or annul or remit or alter it, then it leads to a discharge of the
original contract due to a mutual agreement.
3. Discharge by the Impossibility of Performance: If it is impossible for any of the parties
to the contract to perform their obligations, then the impossibility of performance leads to
a discharge of the contract
4. Discharge by Breach of Contract: If a party to a contract fails to perform his obligation
according to the time and place specified, then he is said to have committed a breach of
contract.
5. Discharge of a Contract by Operation of Law: A contract can be discharged by
operation of law which includes insolvency or death of the promisor.
 Lapse of Time: If the promisor fails to perform and the promisee fails to take action
within this specified period
 Merger of Rights: In some situations, it is possible that inferior and superior right
coincides in the same person. In such cases, both the rights combine leading to a
discharge of the contract governing the inferior rights

6.1 Breach of Contracts and remedies

 Recession of Contract
When one of the parties to a contract does not fulfil his obligations, then the other party
can rescind the contract and refuse the performance of his obligations.
 Sue for Damages
The party who has suffered, since the other party has broken promises, can claim
compensation for loss or damages caused to them in the normal course of business.
 Sue for Specific Performance
The party in breach will actually have to carry out his duties according to the contract. In
certain cases, the courts may insist that the party carry out the agreement.
 Injunction
An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular act.
 Quantum Meruit
Quantum meruit literally translates to “as much is earned”. At times when one party of
the contract is prevented from finishing his performance of the contract by the other
party, he can claim quantum meruit.