IN FORCE since 1ST SEPTEMBER 1872

Contract::agreement enforceable by law

Agreement:: Every promise and Every set of promises Forming consideration for each other

Promise:A proposal when accepted

3

Contract::agreement enforceable by law

Agreement:: Every promise and Every set of promises Forming consideration for each other

Promise:A proposal when accepted

Nitika Bachhawat

Essentials of a valid contract

Not given by Act but areessential

Given by the Act

1. Two parties2. Intention to create a legal

relationship3. Fulfillment of legal

formalities4. Certainty of meaning5. Possibility of

performance

1. Offer and acceptance2. Lawful consideration3. Capacity to contract4. Free consent5. Legal object6. Not expressly declared

void

1. Two parties2. Intention to create a legal

relationship3. Fulfillment of legal

formalities4. Certainty of meaning5. Possibility of

performance

1. Offer and acceptance2. Lawful consideration3. Capacity to contract4. Free consent5. Legal object6. Not expressly declared

void

4Nitika Bachhawat

Types of contractBasis of validity Basis of

formationBasis ofperformance

1. Void2. Voidable3. Illegal4. Unenforceable5. valid

1. Express2. Tacit3. Quasi4. E.com

1. Executed2. Executory3. Unilateral4. Bilateral

5

1. Void2. Voidable3. Illegal4. Unenforceable5. valid

Nitika Bachhawat

Void Voidable Valid Illegal unenforceable

not enforceableby law

enforceable atthe option ofone party butnot at theoption of other

enforceable atthe option ofboth theparties

void andpunishable

not enforceabledue totechnicaldefects

Express Tacit Quasi E com

By words oral orwritten

Inferred by acts ofthe parties

Not a real contractbut looks like acontract implied bylaw

Contract enteredusing electronicmeans

By words oral orwritten

Inferred by acts ofthe parties

Not a real contractbut looks like acontract implied bylaw

Contract enteredusing electronicmeans

Unilateral Bilateral Executed Executory

One sided contractone havingperformed beforeor at the time ofcontract

Both the parties areyet to perform

Reciprocalpromises yet to beperformed

Performed

6Nitika Bachhawat

Void Voidable

It is not enforceable by law It is enforceable at the option of theaggrieved party

The contract cannot be performed If the aggrieved party within areasonable time does not avoid thecontract then he will have to perform thecontract.

The aggrieved party will not have anylegal remedies

The aggrieved party will have legalremedies against the other party.

The aggrieved party will not have anylegal remedies

The aggrieved party will have legalremedies against the other party.

Void Illegal

It is not punishable by law It is punishable by law

It need not be void ab initio It is always void ab initio

Void need not be illegal Illegal is always void

If the main contract is void the collateralis valid

Collateral to an illegal agreement isalways void

7Nitika Bachhawat

Offer :Willingness to do or to abstain from doing something , with a view toobtain the other’s consent.

Special General Cross Counter Standing

• made to adefinite personor group• accepted bythat person orgroup• the offereeknown to theofferor

• made to theworld at large• anyone maycome forwardact accordinglyand accept theoffer• the offeree isnot known tothe offeror

• identicaloffers• in ignorance• both offerswill lapse• no contractcan arise

• modificationof the originaloffer• original offerwill lapse•Contract canarise ifacceptedwithin thatperiod

• open foracceptanceover a periodof time.

Types of offer:

• made to adefinite personor group• accepted bythat person orgroup• the offereeknown to theofferor

• made to theworld at large• anyone maycome forwardact accordinglyand accept theoffer• the offeree isnot known tothe offeror

• identicaloffers• in ignorance• both offerswill lapse• no contractcan arise

• modificationof the originaloffer• original offerwill lapse•Contract canarise ifacceptedwithin thatperiod

• open foracceptanceover a periodof time.

8Nitika Bachhawat

Rules of offer:

1. Must be clear, definite and not vague2. May be express or implied3. Must be communicated4. Cannot be accepted in ignorance5. May be conditional6. Must not contain a term non-compliance of which would amount to

acceptance7. An invitation to offer is not an offer

Acceptance:When the Offeree signifies his consent theretoRules of acceptance :

1. Must be unconditional2. Must be communicated3. Cannot be presumed from silence4. Must be in the specified mode5. Must be within the specified or reasonable time6. May be by conduct

9

Rules of offer:

1. Must be clear, definite and not vague2. May be express or implied3. Must be communicated4. Cannot be accepted in ignorance5. May be conditional6. Must not contain a term non-compliance of which would amount to

acceptance7. An invitation to offer is not an offer

Acceptance:When the Offeree signifies his consent theretoRules of acceptance :

1. Must be unconditional2. Must be communicated3. Cannot be presumed from silence4. Must be in the specified mode5. Must be within the specified or reasonable time6. May be by conduct

Nitika Bachhawat

Communication of Offer

For the Offeror For the Offeree

When he posts theletter

When he receives theletter

When he posts theletter

When he receives theletter

Communication of offer takes place when it comes to theknowledge of the person to whom it is made

10Nitika Bachhawat

Communication of Acceptance

As against the Proposer As against the Acceptor

When the Acceptorposts the letter When the letter

reaches the Proposer

When the Acceptorposts the letter When the letter

reaches the Proposer

11Nitika Bachhawat

Communication of Rescission

For the personwho makes it

For the person againstwhom it is made

When he posts it When he receives itWhen he posts it When he receives it

12Nitika Bachhawat

Time of Rescission

Offer Acceptance

If the revocation letter reachesbefore the acceptance letter isposted

If the revocation letterreaches before theacceptance letter reaches

If the revocation letter reachesbefore the acceptance letter isposted

If the revocation letterreaches before theacceptance letter reaches

13Nitika Bachhawat

Consideration :• when at the desire of the promisor• the promisee or any other person• has done or abstained from doing, does or abstains from doing orpromises to do or abstain from doing• such an act or abstinence or promise is called promise for theconsideration.

Rules of consideration:

1. Must move at the desire of the Promisor2. May move from the Promisee or any other person3. Maybe Executed or Executory4. May be past ,present or future5. Need not be adequate6. Must be for something which a promisor is not bound to do

14

Consideration :• when at the desire of the promisor• the promisee or any other person• has done or abstained from doing, does or abstains from doing orpromises to do or abstain from doing• such an act or abstinence or promise is called promise for theconsideration.

Rules of consideration:

1. Must move at the desire of the Promisor2. May move from the Promisee or any other person3. Maybe Executed or Executory4. May be past ,present or future5. Need not be adequate6. Must be for something which a promisor is not bound to do

Nitika Bachhawat

Privity of contract:

Only the parties to the contract cansue and be sued third party cannotsue

No consideration nocontract:

a contract without consideration isvoid

1. Trust or beneficiary2. Family or marriage settlement3. Assignment4. Estoppel or acknowledgment of

liability5. Covenants running with the land

1. Natural love and affection2. Compensation for past voluntary

service3. Time barred debt4. Agency5. Completed gifts and donations6. Bailment

1. Trust or beneficiary2. Family or marriage settlement3. Assignment4. Estoppel or acknowledgment of

liability5. Covenants running with the land

1. Natural love and affection2. Compensation for past voluntary

service3. Time barred debt4. Agency5. Completed gifts and donations6. Bailment

15Nitika Bachhawat

Minor’s agreement:

1. A minors agreement is void2. He can be a beneficiary3. A minor can plead minority. But if his intention is to cheat he will have to

compensate the other party4. The rule of estoppel does not apply on a minor5. A minors act cannot be ratified6. The rule of restitution does not apply on a minor7. A minor can be an agent and not a principal. If he is a principal the agent

will be liable8. Contracts by the guardian of minor is valid if it I beneficial for the minor. If

the court appoints the guardian and he contracts with the sanction of thecourt all such contracts are valid.

9. A minor is never personally liable for the necessaries supplied to him, theliability is against his property .

10. A minor is laible for torts other than for breach of contract11. If a minor is one of the joint promisors except him all the other parties

shall be liable

16

Minor’s agreement:

1. A minors agreement is void2. He can be a beneficiary3. A minor can plead minority. But if his intention is to cheat he will have to

compensate the other party4. The rule of estoppel does not apply on a minor5. A minors act cannot be ratified6. The rule of restitution does not apply on a minor7. A minor can be an agent and not a principal. If he is a principal the agent

will be liable8. Contracts by the guardian of minor is valid if it I beneficial for the minor. If

the court appoints the guardian and he contracts with the sanction of thecourt all such contracts are valid.

9. A minor is never personally liable for the necessaries supplied to him, theliability is against his property .

10. A minor is laible for torts other than for breach of contract11. If a minor is one of the joint promisors except him all the other parties

shall be liable

Nitika Bachhawat

Coercion Undueinfluence

Fraud Misrepresentation

• Committing orthreatening tocommit an actwhich is a crimeunder the IndianPenal Code.• unlawfuldetaining orthreatening todetain any property• with theintention ofcausing the otherparty to contract

• Parties are in sucha relation that• one party is in aposition todominate the willof another•Uses that positionto obtain an unfairadvantage over theoher• position todominate will:i. Real and

apparentauthority

ii. Fiduciaryrelation

iii. Mental distressiv. Unconscionable

bargains

• Means andincludes• act done by theparty or with hisconnivance or byhis agent• with an intent todeceive the otherparty or to inducehim to enter intoa contract

• the positiveassertion of a factwhich is not truethough he believesit to be true• breach of dutywithout anintention to deceivegains an advantageover another bymisleading another• causing howeverinnocently a partyto agreement tomake a mistake tothe substancewhich is the subjectof the agreement.

Nitika Bachhawat

• Committing orthreatening tocommit an actwhich is a crimeunder the IndianPenal Code.• unlawfuldetaining orthreatening todetain any property• with theintention ofcausing the otherparty to contract

• Parties are in sucha relation that• one party is in aposition todominate the willof another•Uses that positionto obtain an unfairadvantage over theoher• position todominate will:i. Real and

apparentauthority

ii. Fiduciaryrelation

iii. Mental distressiv. Unconscionable

bargains

• Means andincludes• act done by theparty or with hisconnivance or byhis agent• with an intent todeceive the otherparty or to inducehim to enter intoa contract

• the positiveassertion of a factwhich is not truethough he believesit to be true• breach of dutywithout anintention to deceivegains an advantageover another bymisleading another• causing howeverinnocently a partyto agreement tomake a mistake tothe substancewhich is the subjectof the agreement.

17

The following acts are regarded as fraudi. Stating a wrong fact as trueii. Active concealment of fact (hide the fact)iii. promise made without an intention to performiv. Any at fitted to deceive

Silence is not fraud:Exceptions:1. Duty of the person keeping silent to speak2. Where silence is equivalent to speech

Consequences of coercion, undue influence, fraud andmisrepresentation:

1. The contract is voidable2. Where one party uses fraud or misrepresentation and the other party iif he would

have used his diligence would have come to know the facts the contract is valid3. If one party uses fraud or misrepresentation but the other party was not infact

misled by it he contract is valid,

The following acts are regarded as fraudi. Stating a wrong fact as trueii. Active concealment of fact (hide the fact)iii. promise made without an intention to performiv. Any at fitted to deceive

Silence is not fraud:Exceptions:1. Duty of the person keeping silent to speak2. Where silence is equivalent to speech

Consequences of coercion, undue influence, fraud andmisrepresentation:

1. The contract is voidable2. Where one party uses fraud or misrepresentation and the other party iif he would

have used his diligence would have come to know the facts the contract is valid3. If one party uses fraud or misrepresentation but the other party was not infact

misled by it he contract is valid,

18Nitika Bachhawat

Mistake

Bilateral Unilateral Indian law Foreign law

Mistake of subjectmatteri. Quantityii. Qualityiii. Identityiv. Existencev. title

When one party ismistaken about thesubject matter

Ignorantia jurisnon excusat

Is treated as amistake of fact

Mistake of fact Mistake of law

Mistake of subjectmatteri. Quantityii. Qualityiii. Identityiv. Existencev. title

When one party ismistaken about thesubject matter

Ignorantia jurisnon excusat

Is treated as amistake of fact

VOID VALID VALID VOID

19Nitika Bachhawat

Lawful object or consideration

1. Consideration or object is forbidden by law2. Consideration or object defeats the provisions of law3. When consideration defeats any rule for the time being in force4. When it is fraudulent5. When consideration involves injury to the person or property of

another6. When consideration is immoral7. When consideration is opposed to public policy

i. Trading with enemyii. Stifling prosecutioniii. Maintenance and champertyiv. Interference with the course of justicev. Traffic relating to public offices/ sale of public officesvi. Interest against obligationvii. Marriage brokerage agreementviii. Agreement in restraint of marriageix. Agreement for the creation of monopolyx. Agreement in restraint of tradexi. Agreement in restraint of legal proceedings

20

Lawful object or consideration

1. Consideration or object is forbidden by law2. Consideration or object defeats the provisions of law3. When consideration defeats any rule for the time being in force4. When it is fraudulent5. When consideration involves injury to the person or property of

another6. When consideration is immoral7. When consideration is opposed to public policy

i. Trading with enemyii. Stifling prosecutioniii. Maintenance and champertyiv. Interference with the course of justicev. Traffic relating to public offices/ sale of public officesvi. Interest against obligationvii. Marriage brokerage agreementviii. Agreement in restraint of marriageix. Agreement for the creation of monopolyx. Agreement in restraint of tradexi. Agreement in restraint of legal proceedings

Nitika Bachhawat

Agreement expressly declared voidAgreement unlawful inpart

Agreement which isuncertain

Wagering agreement

• if both parts areseparable then the legalpart is valid and the illegalpart is void

•If both the parts are notseparable then thecontract is completelyvoid.

• Even if the parties agreeto such an agreement itshall be void on thegrounds of uncertainty.

• if in an agreement thereis a vague term but thereare means to ascertain thevague term the contract isnot void.

• an agreement to give moneyupon the happening or nonhappening of an uncertainevent.•Both the parties are set to winor lose•The following are notregarded as wager:i. Crossword puzzles and

competitions based onskill and not dependenton the similarity of answerwith the editors answer

ii. Speculationiii. Horse racing where prize

is 500 or moreiv. Chit fundv. Commercial transaction

or share markettransactions

vi. Games of skill and athletecompetition

vii. Insurance contracts

Nitika Bachhawat

• if both parts areseparable then the legalpart is valid and the illegalpart is void

•If both the parts are notseparable then thecontract is completelyvoid.

• Even if the parties agreeto such an agreement itshall be void on thegrounds of uncertainty.

• if in an agreement thereis a vague term but thereare means to ascertain thevague term the contract isnot void.

• an agreement to give moneyupon the happening or nonhappening of an uncertainevent.•Both the parties are set to winor lose•The following are notregarded as wager:i. Crossword puzzles and

competitions based onskill and not dependenton the similarity of answerwith the editors answer

ii. Speculationiii. Horse racing where prize

is 500 or moreiv. Chit fundv. Commercial transaction

or share markettransactions

vi. Games of skill and athletecompetition

vii. Insurance contracts

21

22

Succession AssignmentInheritance. Transfer of rights

Who can perform the contract:

1. The promisor himself2. His agent except in case of contracts of personal skill and confidence3. The legal representatives in the event of death of the parties except in case of

contracts of personal skill and confidence4. Third party5. Joint promisors

22

Inheritance. Transfer of rights

Operation of law Operation of law or by agreement

Both asserts and liabilities are transferredbut liability to the extent of assets

Liabilities are assigned only with theconsent of all the parties concerned

22Nitika Bachhawat

Time and place of performanceCase Perfomance

No time specified reasonable time

Day specified but no time specified during the business hours

No place fixed duty of the Promisor to ask the Promiseeto fix a reasonable place

Performance on a particular day butPromisor will not perform unless askedby the Promisee

duty of the Promisor to ask the Promiseeto fix a reasonable place

23

Performance on a particular day butPromisor will not perform unless askedby the Promisee

Effect of refusal to accept performance

Promisor isnot liable fornonperformacenor does helose hisrights

Nitika Bachhawat

Where the promisor offers to perform the promise:i. Unconditionallyii. At the proper time and placeiii. The promisee is given an opportunity to examine the

thing whether it is same for which the contract is madeAnd the promisee refuses to accept .Offer to one of the joint promisors shall be deemed tobe an offer to all of them

Effect of refusal by a party to performIf one of the parties has refused to perform the contract the other party mayi. Terminate the contract; orii. Indicate by words or conduct about his intention to carry on with the contract.Once he accepts the contract he cannot later cancel the same

Liability of joint promisorsEach of the joint promisor is jointly liable for his share and severally liable for thewhole share.

If any of the joint promisor has performed the whole contract he may compel theothers to contribute to the performance.

24

If any of the joint promisor has performed the whole contract he may compel theothers to contribute to the performance.

If any one of the joint promisor makes a default in such contribution or is unable tocontribute then his loss shall be borne by the others in their proportion

If any one of the joint promisor is dead his legal heirs along with the other survivorsshall perform the contract. If all the joint promisors are dead then the legal heirs ofall the joint promisors shall perform the contract.

If the promisee releases any of the joint promisor it does result in the release of theother joint promisors and they shall be liable to the promisee. However the releasedpromisor shall be liable to the other joint promisors

Nitika Bachhawat

Reciprocal promises1. Promises which are to be performed simulteneously2. Promisor need not perform his promise unless the promisee is ready and willing

to perform his promise3. The order of performance may be fixed either by agreement or by implication

i. By agreement is when the parties fix the order in which the contract shall beperformed. Contract must be performed in the specified order only

ii. The contract may not specify the order but it can implied from the natureof contract the order of performance

4. In case of reciprocal promises if one party prevents the other from performingthe contract the party so preventedi. Has no obligation to performii. But has a right to claim the damages

25

1. Promises which are to be performed simulteneously2. Promisor need not perform his promise unless the promisee is ready and willing

to perform his promise3. The order of performance may be fixed either by agreement or by implication

i. By agreement is when the parties fix the order in which the contract shall beperformed. Contract must be performed in the specified order only

ii. The contract may not specify the order but it can implied from the natureof contract the order of performance

4. In case of reciprocal promises if one party prevents the other from performingthe contract the party so preventedi. Has no obligation to performii. But has a right to claim the damages

Appropriation of payment1. Debtor will specify and if the creditor accepts the payment must set off that

debt only.2. If the payment is made on account generally, the creditor may set off any debt.3. If nothing is specified the first debt in order of time and if more then one debt

then in their proportion.

Nitika Bachhawat

Time of performanceTime of essence Time not of essence

If the time is of essence and the partyfails to perform the aggrieved party has aright to avoid the contract.

If time is not of essence and party fails toperform within time the contract is valid.The aggrieved party can claim damages

If the party accepts the performance atany time other than fixed for contractthen he can claim damages only if hegives notice.

26

RestitutionRestore the benefits received under a void contract or under a voidable contract on itsbecoming void.

Nitika Bachhawat

Discharge of contract Nitika Bachhawat

1. Performancei. Actaul – parties have discharged there obligationmii. Attempted - one is ready, other refuses to accept

2. Lapse of time3. Operation of law

i. Deathii. Insolvencyiii. Merger

4. Mutual consenti. Novation: substituting old contract for a new contractii. Rescission: cancellation of the contractiii. Alteration: change in the terms of the contractiv. Remission: acceptance of lesser amount or kind in place of cash

5. Impossibility of performancei. Existing at the time of contract (known to both, unknown to both, known to

one)ii. Supervening impossibility (death of the promisor, destruction of subject

matter, non existence of a particular state of things, outbreak of war, changein law)

6. Breach – non fulfillment of the terms of the contract.i. Actual – on the due date or during the course of performanceii. Anticipatory – prior to the due date 27

1. Performancei. Actaul – parties have discharged there obligationmii. Attempted - one is ready, other refuses to accept

2. Lapse of time3. Operation of law

i. Deathii. Insolvencyiii. Merger

4. Mutual consenti. Novation: substituting old contract for a new contractii. Rescission: cancellation of the contractiii. Alteration: change in the terms of the contractiv. Remission: acceptance of lesser amount or kind in place of cash

5. Impossibility of performancei. Existing at the time of contract (known to both, unknown to both, known to

one)ii. Supervening impossibility (death of the promisor, destruction of subject

matter, non existence of a particular state of things, outbreak of war, changein law)

6. Breach – non fulfillment of the terms of the contract.i. Actual – on the due date or during the course of performanceii. Anticipatory – prior to the due date

Remedies for breachDamages Sue for

rescissionQuantum

meruitSue for specific

performanceSue for

injunctionOrdinary – claimed as arightSpecial – claimed onlywhen notice of special lossVindictive or exemplarydamages – breach ofcontract of marriage andwrongful dishonour ofcustomers chequeNominal – when theaggrieved party does notsuffer any loss on account ofbreachPenalty – very high amountLiquidated – very near tothe actual damage

If one partydoes notperform theother maysue forcancelingthe contract

As muchas isearned ormerited

i. Goods haveno substitute;or

ii. Damages arenot anadequaterelief

Has to performthe contract

There is anegativeterm in thecontract andone partybreachesthatnegativeterm

28

Ordinary – claimed as arightSpecial – claimed onlywhen notice of special lossVindictive or exemplarydamages – breach ofcontract of marriage andwrongful dishonour ofcustomers chequeNominal – when theaggrieved party does notsuffer any loss on account ofbreachPenalty – very high amountLiquidated – very near tothe actual damage

i. Goods haveno substitute;or

ii. Damages arenot anadequaterelief

Has to performthe contract

There is anegativeterm in thecontract andone partybreachesthatnegativeterm

Rules of damages: (1) Any damage arising in the ordinary course of the contractcan be claimed as a matter of right. (2) Special damages can be claimed only ifthe special circumstances were made known. (3) Remote damages can never beclaimed. (4) Any damage arising under a quasi contract can be claimed.

Nitika Bachhawat

Contingent contractDependent on

the happening ofan event

Dependent onthe non

happening of anevent

Dependendt on athird party

Dependent on animpossible event

If a contingentcontract isdependent on thehappening on anevent it isValid: when theevent happens andBecomes void:when the eventdoes not happen

If a contingentcontract isdependent on thenon happening onan event it isValid: when theevent does nothappen andBecomes void:when the eventhappens or doesnot becomeimpossible

If the third partyacts according tothe contract thecontract shall bevalid

It is void ab initio

29

If a contingentcontract isdependent on thehappening on anevent it isValid: when theevent happens andBecomes void:when the eventdoes not happen

If a contingentcontract isdependent on thenon happening onan event it isValid: when theevent does nothappen andBecomes void:when the eventhappens or doesnot becomeimpossible

If the third partyacts according tothe contract thecontract shall bevalid

Nitika Bachhawat

Quasi contract

Goods delivered by mistake or under coercion: person to whom money has beenpaid or anything is delivered by mistake or under coercion must repay or return.

claim for necessaries supplied to a minor or to a lunatic’s family: if a person notcapable of contracting is supplied with necessaries or supplied to his family, theperson can recover the value of the necessaries from the person’s property.

Payment by an interested party: A person who makes payment on behalf ofanother to protect his interest has a right to recover the amount from the person onwhose behalf the payment was made.

Obligation of a person receiving benefits o a non gratuitous act: if a person doesnythig for another or delivers something not doing so gratuitously then the personwho enjoys the benefit is liable to pay the reasonable charges .

Responsibility of finder of the goods: if a person finds goods belonging to anothertakes them in his custody he has the same position as that of the bailee of the goods.He must restore the good back to the true owner.

30

Goods delivered by mistake or under coercion: person to whom money has beenpaid or anything is delivered by mistake or under coercion must repay or return.

claim for necessaries supplied to a minor or to a lunatic’s family: if a person notcapable of contracting is supplied with necessaries or supplied to his family, theperson can recover the value of the necessaries from the person’s property.

Payment by an interested party: A person who makes payment on behalf ofanother to protect his interest has a right to recover the amount from the person onwhose behalf the payment was made.

Obligation of a person receiving benefits o a non gratuitous act: if a person doesnythig for another or delivers something not doing so gratuitously then the personwho enjoys the benefit is liable to pay the reasonable charges .

Responsibility of finder of the goods: if a person finds goods belonging to anothertakes them in his custody he has the same position as that of the bailee of the goods.He must restore the good back to the true owner.

Nitika Bachhawat