Basics of Contract Act[1]

8/6/2019 Basics of Contract Act[1]

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CONTRACT ACTCONTRACT ACT

Basics of Contract ActBasics of Contract Act


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CONTRACTCONTRACT

Meaning and definition of Contract & otherMeaning and definition of Contract & otherrelative terms such as Offer, Acceptance etc as perrelative terms such as Offer, Acceptance etc as perContract Act,1872.Contract Act,1872.

Elements and classification of ContractsElements and classification of Contracts Relevant provisions of the Act & casesRelevant provisions of the Act & cases

Communication & RevocationCommunication & Revocation

Discharge of ContractDischarge of Contract

Remedies for breach of ContractsRemedies for breach of Contracts PrecautionsPrecautions

Special ContractsSpecial Contracts agency;agency; ContingentContingent,, minor,minor,quasi,quasi, mortgage,mortgage,


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CONTRACTCONTRACT

Agreement in daily lifeAgreement in daily life

An Agreement is definedAn Agreement is defined

in section 2 (e) of the Actin section 2 (e) of the Act

isis -- a promise .a promise . PromisePromise a proposala proposal

when accepted , becomeswhen accepted , becomes

a promise. ( Sec 2 b).a promise. ( Sec 2 b).

Agreement = Offer +Agreement = Offer +AcceptanceAcceptance


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Every Agreement is not a Contract.Every Agreement is not a Contract.

AGREEMENT ENFORCEABLE IN LAWAGREEMENT ENFORCEABLE IN LAW

IS CONTRACT.IS CONTRACT. Contract : Agreement + enforceable by law.Contract : Agreement + enforceable by law.

i.e.i.e. legal obligationslegal obligations to do or abstainingto do or abstaining

from doing anything. ( Social, illegal)from doing anything. ( Social, illegal) All contracts are agreement but allAll contracts are agreement but all

agreements are not contractsagreements are not contracts


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The Contract Act is the law of thoseThe Contract Act is the law of those

agreements which create obligation andagreements which create obligation and

there is a legal remedy for the breachthere is a legal remedy for the breachthereof.thereof.

Legal Contracts creates Rights inLegal Contracts creates Rights in

Personam as distinguished from Rights inPersonam as distinguished from Rights in

Rem i.e. Rights against the whole world.Rem i.e. Rights against the whole world. ConsensusConsensus--adad--idumidum


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Essential of Contract:Essential of Contract:

Agreement & Legal Obligation ;Agreement & Legal Obligation ;

Section 10 : states elements of Contract which areSection 10 : states elements of Contract which are Agreement ( Offer+ Acceptance)Agreement ( Offer+ Acceptance)

Two parties ( Promisor & Promisee)Two parties ( Promisor & Promisee)

Intention to create legal relationshipIntention to create legal relationship

Free Consent ( Sec 13,14)Free Consent ( Sec 13,14) Coercion(15), Undue Influence(16), Fraud(17),Coercion(15), Undue Influence(16), Fraud(17),

Misrepresentation (18) or Mistake ( 21Misrepresentation (18) or Mistake ( 21--22)22)


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Elements of Contract :Elements of Contract :

Parties competent to ContractsParties competent to Contracts

Minor, unsound mind, disqualified by lawMinor, unsound mind, disqualified by law

Lawful considerationLawful consideration

( Past , present, future, cash, kind, act, abstinence)( Past , present, future, cash, kind, act, abstinence)

Lawful Object ( Not illegal/immoral)Lawful Object ( Not illegal/immoral)

Agreements not declared void or illegal ( S 24Agreements not declared void or illegal ( S 24--30)30)

Certainty of Meaning (29)Certainty of Meaning (29)

Possibility of performancePossibility of performance

Necessary Legal FormalitiesNecessary Legal Formalities


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Classification/Types of Contracts:Classification/Types of Contracts:

Classification according to Enforceability :Classification according to Enforceability :

Valid, Void & Voidable, Illegal, UnenforceableValid, Void & Voidable, Illegal, Unenforceable

Valid = section 10 elementsValid = section 10 elements Enforceable at the option of one or more parties = VoidableEnforceable at the option of one or more parties = Voidable

Section 23Section 23--30 = Void30 = Void

Classification according to FormationClassification according to Formation

Express, Implied & Quasi JudicialExpress, Implied & Quasi Judicial Classification according to Performance :Classification according to Performance :

Executed, Executory, Unilateral, BilateralExecuted, Executory, Unilateral, Bilateral


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Precautions :Precautions :

Elements of valid contractElements of valid contract

DATE & PlaceDATE & Place

Name of the Parties & status thereofName of the Parties & status thereof

Signed by the Same Person or POA = FreeSigned by the Same Person or POA = Freeconsent. Sign on each page.consent. Sign on each page.

Terms and consideration to be clearly definedTerms and consideration to be clearly defined All column to be filled upAll column to be filled up

Modification or OverModification or Over--writing to be initialedwriting to be initialed


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OFFER & ACCEPTACE :OFFER & ACCEPTACE :

OfferOffer Section 2 (a) : Proposal ;Section 2 (a) : Proposal ;

How an offer is made : Express =spoken, writtenHow an offer is made : Express =spoken, written

Implied/by way of ConductImplied/by way of Conduct Act or OmissionAct or Omission General and Specific OfferGeneral and Specific Offer

Essential of Valid Offer :Essential of Valid Offer : Must be made with a view to obtaining acceptanceMust be made with a view to obtaining acceptance

Must be made with the intention of creating legalMust be made with the intention of creating legalrelationrelation

Terms of offer must be definite, unambiguous & certainTerms of offer must be definite, unambiguous & certainof capable of being made certainof capable of being made certain


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Elements of OFFER:Elements of OFFER:

It must be distinguished from mere declarationIt must be distinguished from mere declarationof intention or invitation of offer. ( A Tender isof intention or invitation of offer. ( A Tender is

an offer)an offer) It must be communicated to offereeIt must be communicated to offeree

The offer must not be contain a term the nonThe offer must not be contain a term the non--compliance of which may be assume to amountcompliance of which may be assume to amount

to acceptanceto acceptance

Special TermsSpecial Terms

Cross offersCross offers


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Termination/Lapse of OfferTermination/Lapse of Offer

The offer lapses after stipulated or reasonable timeThe offer lapses after stipulated or reasonable time

Death or insanity of the offeror or the offereeDeath or insanity of the offeror or the offeree Rejected by offereeRejected by offeree

Revoked by OfferorRevoked by Offeror

Not being accepted in the specified mode orNot being accepted in the specified mode or

reasonable manner.reasonable manner.

Counter offerCounter offer


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ACCEPTACE :ACCEPTACE :

MeaningMeaning

Acceptance how made and by whomAcceptance how made and by whom Elements of ACCEPTANCE :Elements of ACCEPTANCE :

It must be absolute & UnqualifiedIt must be absolute & Unqualified

It must be communicated to the OfferorIt must be communicated to the Offeror It must be according to the mode prescribedIt must be according to the mode prescribed

It must be given in specified timeIt must be given in specified time


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ELEMENTS OF ACCEPTANCE:ELEMENTS OF ACCEPTANCE:

It must be in response to the OfferIt must be in response to the Offer

It must be made before the offer is lapses,It must be made before the offer is lapses,terminated, withdrawn or revokedterminated, withdrawn or revoked

It must be given to the Offeror or its AuthorizedIt must be given to the Offeror or its Authorized

Agents.Agents.


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COMMUNICATION of Offer, Acceptance &COMMUNICATION of Offer, Acceptance &Revocation thereof.Revocation thereof.

Offer :The communication of offer is completeOffer :The communication of offer is complete

when it comes to the knowledge of the person towhen it comes to the knowledge of the person towhom it is made.whom it is made.

Acceptance : The communication of Acceptance isAcceptance : The communication of Acceptance iscomplete :complete :

Against the proposerAgainst the proposer when it is put into a course ofwhen it is put into a course oftransmission so as to be out of power of the acceptortransmission so as to be out of power of the acceptor

Against the AcceptorAgainst the Acceptor when it comes to the knowledgewhen it comes to the knowledgeof the Proposer.of the Proposer.


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Communication of Revocation :Communication of Revocation :

The communication of revocation isThe communication of revocation is

complete :complete : Against the person who makes itAgainst the person who makes it when it iswhen it is

put into a course of transmission so as to be output into a course of transmission so as to be out

of power of the person who makes it.of power of the person who makes it.

Against the person to whom it is madeAgainst the person to whom it is made whenwhen

it comes to his knowledge.it comes to his knowledge.


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Section 5 : Revocation of Offer &Section 5 : Revocation of Offer &Acceptance :Acceptance :

Offer : An offer may be revoked at any timeOffer : An offer may be revoked at any timebefore the communication of its acceptancebefore the communication of its acceptanceis complete as against the Proposer.is complete as against the Proposer.

Acceptance : An Acceptance may beAcceptance : An Acceptance may be

revoked at any time before therevoked at any time before thecommunication the acceptance is completecommunication the acceptance is completeas against the Acceptor.as against the Acceptor.


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Contract with MINOR :Contract with MINOR :

Indian Majority ActIndian Majority Act not completed 18 years.not completed 18 years.

Law protects minor but no hardships to others.Law protects minor but no hardships to others.

A Minor is not competent to contract, henceA Minor is not competent to contract, hencea contract with Minor is Voida contract with Minor is Void--abab--intio.intio. Mohri Bibi Vs Dharam Das GhoshMohri Bibi Vs Dharam Das Ghosh

Minor can be beneficiaryMinor can be beneficiary

Scooter, Raghav Vs Srinivas = mortgage in favour of MScooter, Raghav Vs Srinivas = mortgage in favour of M The agreement cannot be ratified by the Minor onThe agreement cannot be ratified by the Minor on

attaining majority.attaining majority. ( Exception = Sindha Vs Abrahim = continuity( Exception = Sindha Vs Abrahim = continuityof service after majority)of service after majority)


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CONTRACT ACTCONTRACT ACT Minor can not be asked to refund the benefit,Minor can not be asked to refund the benefit,

profit enjoyed by him. (s65)profit enjoyed by him. (s65)

A Minor can always plead minority,A Minor can always plead minority, (even if he(even if hemisrepresented his agemisrepresented his age he will have to restore the property).he will have to restore the property).

Minors parent cannot be liable to MinorsMinors parent cannot be liable to Minorscreditor for the breach of contract,creditor for the breach of contract, however any contracthowever any contractentered into on behalf of Minor by the Parents can be enforcedentered into on behalf of Minor by the Parents can be enforcedprovided it is in their authority and for the benefit of Minor.provided it is in their authority and for the benefit of Minor.

A Minor cannot be a partner in any PartnershipA Minor cannot be a partner in any Partnership

Firm except for profits.Firm except for profits. A Minor can act as Agent.A Minor can act as Agent.

Minor cannot be adjudged as an insolvent.Minor cannot be adjudged as an insolvent.


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A Minors estate is liable to a person whoA Minors estate is liable to a person who

suppliessupplies necessariesnecessaries of life to a Minor.of life to a Minor. Necessary goodsNecessary goods

Not only bread and clothes but may include watch,Not only bread and clothes but may include watch,bicycle etc.bicycle etc.

Reasonably necessary to him having regard to hisReasonably necessary to him having regard to hislife stylelife style

11 coats11 coats not, Fur coat may benot, Fur coat may be Necessary ServicesNecessary Services education, sports training etc.education, sports training etc.

Loan forLoan fornecessariesnecessaries


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Discharge of Contract :Discharge of Contract : (means termination of contractual(means termination of contractualrelationship, whereby all rights and obligations are created by it come to end.)relationship, whereby all rights and obligations are created by it come to end.)

By PerformanceBy Performance Doing of what is required under contract, parties fulfills theirDoing of what is required under contract, parties fulfills their

obligation within time and manner prescribed therein.obligation within time and manner prescribed therein. Unilateral and bilateralUnilateral and bilateral

Actual and attempted performanceActual and attempted performance (only an offer to perform).(only an offer to perform).

By Mutual Consent ( Expressed or implied):By Mutual Consent ( Expressed or implied):

Novation :Novation : new contract substitutes the existing one, with consent of allnew contract substitutes the existing one, with consent of all

the partiesthe parties

Same terms or better termsSame terms or better terms

Same parties or more partiesSame parties or more parties e.g. debtor, creditor ande.g. debtor, creditor and

guarantor.guarantor. Should be done before ex ir of the existin contractShould be done before ex ir of the existin contract


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Rescission :Rescission : All or some of the terms are cancelled with the mutual consentAll or some of the terms are cancelled with the mutual consent

One party fail to perform; other party may rescind the contractOne party fail to perform; other party may rescind the contract

Alteration :Alteration : change in the termschange in the terms

Remission :Remission : discount, acceptance on lesser fulfillmentdiscount, acceptance on lesser fulfillment

Waiver :Waiver :

Merger :Merger : inferior right merges into a superior rightinferior right merges into a superior right


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By Impossibility of performance ( Doctrine of Frustration):By Impossibility of performance ( Doctrine of Frustration): Impossibility at the time of execution of ContractImpossibility at the time of execution of Contract

Known to the parties = Void abKnown to the parties = Void ab--intiointio

Unknown to the parties = void on the ground of mutual mistakeUnknown to the parties = void on the ground of mutual mistake

Impossibility during the Term of the ContractImpossibility during the Term of the Contract

Void when it becomes impossible.Void when it becomes impossible.

In the following conditions which are beyond the control of the parties theIn the following conditions which are beyond the control of the parties thecontract is deemed to be discharged:contract is deemed to be discharged:

Destruction of subject matterDestruction of subject matter

By Death or disablement of the partiesBy Death or disablement of the parties

Change of lawChange of law

Declaration of warDeclaration of war

Non existence or non occurrence of a particular state of thingsNon existence or non occurrence of a particular state of things


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Exception to the Doctrine of Frustration :Exception to the Doctrine of Frustration : Impossibility as a rule is not an excuse for nonImpossibility as a rule is not an excuse for non

performance except in the following circumstances:performance except in the following circumstances:

Difficulty of PerformanceDifficulty of Performance

Commercial ImpossibilityCommercial Impossibility

Dependency on Third party ( Job Work)Dependency on Third party ( Job Work)

Strikes, lock out and civil disturbance, unlessStrikes, lock out and civil disturbance, unlessthere a force majure clause.there a force majure clause.

Failure of one of the objects.Failure of one of the objects.


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Discharge by lapse of timeDischarge by lapse of time

Discharge by Operation of Law:Discharge by Operation of Law:

By Death : ( Personnel skill)By Death : ( Personnel skill)

By InsolvencyBy Insolvency By unauthrised (unilateral) alterationBy unauthrised (unilateral) alteration

mergermerger

By Breach of ContractBy Breach of Contract Anticipatory BreachAnticipatory Breach repudiates before timerepudiates before time

Actual BreachActual Breach repudiates at or during the timerepudiates at or during the time


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Remedy for Anticipatory breachRemedy for Anticipatory breach

Rescind and damagesRescind and damages

Specific performance &Specific performance & InjunctionsInjunctions

Remedy for Actual breachRemedy for Actual breach

DamagesDamages

Time is the essenceTime is the essence


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Remedies for Breach of Contract :Remedies for Breach of Contract :

Recession of the ContractRecession of the Contract

Damages ( Doctrine of Restitution)Damages ( Doctrine of Restitution)

Ordinary DamagesOrdinary Damages Usual course of business; Diff.Usual course of business; Diff.bet. contract price and market pricebet. contract price and market price

Special DamagesSpecial Damages--Likely to arose (Loss of profit)Likely to arose (Loss of profit) Remote Loss/Quasi ContractsRemote Loss/Quasi Contracts no damagesno damages

Vindictive DamagesVindictive Damages to punish the defaulter.to punish the defaulter.( Marriage and S138 of NIA)( Marriage and S138 of NIA)

Nominal DamagesNominal Damages only technical violation but noonly technical violation but nolossloss


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Loss of reputationLoss of reputation only bankonly bank

Damages for inconvenienceDamages for inconvenience

Mitigation of damagesMitigation of damages

Cost of DecreeCost of Decree

Liquidated DamagesLiquidated Damages predetermined amountpredetermined amount

Penalty ( Interest)Penalty ( Interest)

Specific performanceSpecific performance

InjunctionsInjunctions

Quantun MeruitQuantun Meruit


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Quasi ( Constructive) Contract :Quasi ( Constructive) Contract :

MeaningMeaning law of equity/restitutionlaw of equity/restitution

Contract created by lawContract created by law

Kind of Quasi ContractsKind of Quasi Contracts

Supply of necessaries ( S68)Supply of necessaries ( S68)

Payment by interested person ( S 69)Payment by interested person ( S 69)

Protection of ones interestProtection of ones interest The payment should not be voluntary oneThe payment should not be voluntary one

The payment should be such as that other party was bound byThe payment should be such as that other party was bound by

lawlaw


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Kind of Quasi ContractsKind of Quasi Contracts

Obligation to pay for nonObligation to pay for non--gratuitous acts (S 70)gratuitous acts (S 70)

Act must have been done lawfullyAct must have been done lawfully

Person doing the act should not have intended to doPerson doing the act should not have intended to do

it gratuitouslyit gratuitously

Other person have enjoyed the benefitOther person have enjoyed the benefit

Responsibility of finder of goods ( S 71)Responsibility of finder of goods ( S 71) Mistake or Coercion (S 72)Mistake or Coercion (S 72)


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Quantum meruit ( as much as earned)Quantum meruit ( as much as earned)

When the original contract is dischargedWhen the original contract is discharged

When :When : An agreement is discovered or become voidAn agreement is discovered or become void

Completion of work is prevented by other partyCompletion of work is prevented by other party

Contract is divisibleContract is divisible Remuneration is not fixedRemuneration is not fixed

Documents

Basics of Contract Act[1]