CONTRACT ACT

OFFER/PROPOSAL----ACCEPTANCE----PROMISE----QUID PRO
QUO

AGREEMENT----LEGAL ENFORCEABILITY----CONTRACT
ESSENTIAL ELEMENT OF A CONTRACT
1. Proposal & Acceptance
When one person signifies to another his willingness to do or abstain from
doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.
When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted.
2. Consideration – lawful consideration with a lawful object
When at the desire of the promisor, the promise or any other person has done
or abstained from doing, does or abstains from doing, or promises to do or
abstain from doing something, such act, abstinence, promise is called a
consideration.
3. Capacity of parties to contract
Every person is competent to contract who is of the ageof majority according
to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject. 2
4. Free Consent
Consent of both parties is when they agree to the same thing in the same
sense – CONSENSUS AD IDEM;
Consent must be free i.e. it must not be obtained by coercion, undue
influence, fraud, misrepresentation or mistake.
5. An agreement must not be expressly declared to be void
Void agreements are not enforceable as they are opposed to public policy
like agreements in restraint of trade, or in restraint of marriage, or in
restraint of legal proceedings.
6. Writing and Registration
Oral contract is a valid contract. Contracts must be in writing and
registered, if required by law. Eg – gift, mortgage, sale lease, MOA,
AOA, standard form of contracts.
7. Legal Relationship
Agreements to buy and sell, to marry create legal relationships. 3
8. Certainty
Terms of contracts should be clear and not vague.
9. Possibility of Performance
Contracts based on impossibility of performance are not valid and therefore
void. Eg – Creation of treasure by magic.
10. Enforceability by law
An agreement enforceable by law is a contract, else a mere agreement.
11. Stamping and Registration
Stamping as per State Law and registration as per the Registration Act, 1908.

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AGREEMENTS
Every promise and every set of promises, forming the consideration for each
other is an agreement.
A proposal when accepted becomes a promise.
Kind of Agreements
1. Valid Agreement – enforceable by law.
2. Void Agreement – not enforceable by law due to their being opposed to
public policy, unlawful agreements.
3. Enforceable Agreement – enforceable by law is a contract.
4. Voidable Agreement – consent obtained by coercion, undue influence,
fraud or misrepresentation.
5. Unenforceable Agreement – valid in law but incapable of proving due to
technical defect.
6. Illegal Agreement – void-ab-initio due to collateral illegality, commission
of crime. Every illegal agreement is void but not every void agreement is
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necessarily illegal.
CONTRACT
An agreement enforceable by law is a contract.
Kind of Contracts
1. Valid Contract – all essential elements and enforceable by law.
2.Voidable Contract – consent obtained by coercion, undue influence, fraud or
misrepresentation.
3. Void Contract – a contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable.
4. Unenforceable Contract – valid in law but incapable of proving due to
technical defect.
5. Executed Contract – both parties have performed their
obligations/promises.
6. Executory Contract – neither party has performed.
7. Express Contract – in writing or agreed upon by words spoken.
8. Implied Contract – by conduct or dealings between parties. 6
9. Quasi Contracts – certain obligation which are not contracts but are so in
contemplation of law.
10. Contingent Contracts – promise is conditional and contract shall be
performed only on the happening of some future uncertain event.
Unlawful object/consideration if:
It is forbidden by law;
It is of such a nature that, if permitted, it would defeat the provisions of any
law;
Is fraudulent;
Involves or implies injury to the person or property of another; or
The court regards it as immoral or opposed to public policy
All agreement are not contracts but all contracts are agreements
Agreements to constitute a contract – free consent, competency to contract,
lawful consideration, lawful object and not expressly declared to be void.
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Essentials of a Valid Proposal
1. The person who makes an offer/proposal is called the Promisor.
2. It must intend to create, and be capable of creating a legal obligation.
3. Its terms must be certain.
4. It must be made to obtain the consent of the offeree.
5. It must be communicated.
6. It maybe conditional – Standard form of contracts
- Special terms or conditions must be clearly written, expressed or
communicated to the offeree;
- It should be presented in such a manner that a reasonable person can
become aware of their existence before acceptance;
- Notice of special terms should be contemporaneous with the contract;
- Terms and conditions must be reasonable.
Eg – Banks, hotels, railways, shipping, insurance policies.
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Case Laws
1. Thomson v/s L.M. & S. Railway – Face of the ticket specifically mentioned
‘For conditions see back’; Condition - ‘Railway Company would not be liable
for personal injuries caused to passengers’.
2. Handerson v/s Stevenson – Steamer ticket from Dublin to Whitehaven.
Face of the ticket read ‘Dublin to Whitehaven’; Condition - excluded the
liability of the company for any loss, injury or delay of the passenger or
his/her luggage.
3. Olley v/s Marlborough Court Ltd – Notice on one of the walls of the hotel
room - ‘The proprietors will not hold themselves responsible for articles lost
or stolen, unless handed over to the managers for safe custody’.
4. Lilly White v/s Mannuswami – a laundry receipt contained a condition that
the customers would be entitled to claim only 15% of the market price of the
value of their article(s) in case of loss.
5. Balfour v/s Balfour – monthly allowance, whether creates legal obligation?
6. Harvey v/s Facey – Asked for price of bumper hall pen and if willing to
sell. Lowest price given without stating willingness to sell. Legal obligation?
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Types of Offers/Proposals
1. Express Offers – made by words oral or written.
2. Implies Offers – inference from the conduct of parties.
3. Specific Offers – made to a specific person or a group of persons.
4. General or Public Offers – made to the world at large.
5. Cross Offers – identical offers made by two parties to each other without
knowledge of each others offers.
6. Standing or Open Offers – an offer to receive offers.
7.Counter Offers – rejection of the original offer by making a new offer.
Revocation or Termination of Offer
Communication of notice of revocation; lapse of time when time is prescribed;
Failure to fulfil a condition precedent to acceptance; death or insanity of either
Party; refusal or counter offer; acceptance differs from prescribed one; and
subsequent illegality or destruction of subject matter. 10
Essentials of a Valid Acceptance
1. It should be made by the offeree.
2. It should be unconditional.
3. It should be communicated to the offeror.
4. It maybe in any form, oral or written.
5. It should be in the mode prescribed by the offeror.
6. It should be given within a reasonable time, if no time limit is set.
7. It should be given while the offer is in force.

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Stranger to a Contract – is one who is not a party to a contract.
Privity of Contract – implies that a person who is not privy (having no
personal interest or part in) to a contract, i.e. a third party, an neither sue nor
be sued on the contract.
Exceptions
1. Trust or charge – beneficiary can enforce an agreement, even though
he/she is not a party to it. Khwaja Muhammad v/s Hussaini Begum –
Kharchi-I-Pandan. Pg. 49
2. Assignment – when the benefit under a contract has been assigned, the
assignee can sue upon the contract for the enforcement of his rights, title and
interest. Kisan Lal Sadhu v/s Pramila Bala Dasi.
3. Marriage Settlement – female member can sue for expenses on partition of
HUF. Sunder Raja v/s Lakshm.
4. Family Settlements – members may enforce the settlement although they
were not originally party to the same. Shuppu v/s Subramanium.
5. Agency; and (6) Acknowledgement of liability. Pg 50. 12
Coercion – is the committing or threatening to commit any act forbidden by
the Indian Penal code 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 any agreement.
Undue Influence – A contract is said to be induced by undue influence where
the relations subsisting between the parties are such that one of the parties
was in a position to dominate the will of the other and used that position to
obtain an unfair advantage over the other:
(i) Where he holds a real and apparent authority over the other – father & son
(ii) Where he stands in a fiduciary relationship to the other – doctor &
patient
Fraud – means and includes any of the following acts committed by a party
to a contract or with his connivance or by his agent, with intent to deceive
another party thereto or his agent or to induce him to enter into the contract:
(i) The suggestion as a fact, of that which is not true, by one who does not
believe it to be true;
(ii) The active concealment of a fact by one having knowledge or belief of
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the fact;
(iii) A promise made without any intention of performing it;
(iv) Any other act fitted to deceive; and
(v) any such act or omission as the law specially declares to be fraudulent.
Misrepresentation - it means and includes the following:
(i) The positive assertion of a fact, in a manner not warranted by the
information of the person making it, of that which is not true, though he
believes it to be true;
(ii) Any breach of duty that without an intent to deceive, gains an advantage
of the person committing it, or anyone claiming under him, by misleading
another to his prejudice, or to the prejudice of anyone claiming under him;
(iii) Causing however innocently, a party to an agreement to make a mistake
as to the substance of the thing, which is subject of the agreement.
Mistake – the erroneous belief or misunderstanding in the minds of the
contracting parties concerning the laws or facts about the contract.
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An agreement under a mistake is not valid for there is no consent.
Mistake of Law
Mistake of law of the country – Ignorance of law is no excuse.
Mistake of foreign law – treated as mistake of fact, therefore, void.
Mistake of Fact
Bilateral mistake – void ab initio
Unilateral Mistake – valid contract
Void Agreements
Incompetent Parties
Mistake
Unlawful object of consideration
Restraint of marriage
Restraint of trade
Restraint of legal proceedings
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Meaning of contract is uncertain
Wager – Wagering agreements are a guess, gamble or uncertain venture
about a future occurrence which if it comes about in one’s favour, the other
would have to part with the money that he/she has put up as his/her stake.
Contingent or Impossible events
Agreement to do something illegal
Exceptions – Horse race, Prize Competitions and Contracts of Insurance –
insurable interest.
Restitution of benefits under void agreements
Contingent Contracts – A contract, the performance of which depends on the
happening or non-happening of an uncertain event, incidental to such
contract. It is a contract to do or not to do something, if some event,
collateral to such contract, does or does not happen.
Eg: Contracts of Insurance, Indemnity and Guarantee.

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Performance of Contract
The parties to a contract must either perform or offer to perform their
respective promises, unless such performance is dispensed with or excused
under the provisions of this Act or any other law.
Promises bind the representative of the Promisor in case of death of such
Promisors before performance, unless a contrary intention appears from the
contract.
Types of Performance
Actual performance – when the promisor of a contract has fulfilled his
obligation in accordance with the terms of the contract, the promise is said to
have been actually performed.
Substantial Performance – implies fulfillment of the obligations agreed to in
a contract with only slight variances from the exact terms and/or unimportant
omissions or minor defects. Payment is only possible if contract is severable.
Partial Performance – where one of the parties has performed the contract,
but not completely and the other side has shown willingness to accept the
part performed. Quantum Meruit – as much as is deserved. 17
Attempted Performance or tender – where a promisor has made an offer of
performance to the promise and the offer has not been accepted, the promisor
is not responsible for non-performance nor does he thereby lose his rights
under the contract. A tender id equal to performance.
Reciprocal Performances and Rules – promises which form the consideration
or part of the consideration for each other are called reciprocal promises. The
rules being:
- To be simultaneously performed – the promisor is not bound to perform
unless the promise is ready and willing to perform;
- To be performed in the order fixed by the contract; and
- If the order is that one performs first and the other next, the forst one
cannot claim compensation demanding the second should have performed
first.
Who performs the contract ?
Promisor – when a personal consideration is the foundation of the contract;
Agent – when a personal consideration is not part of the contract 18
Legal Representative – if the promisor dies; and
Joint Promisors – if there are several promisors to the contract.
Who can demand performance?
Promisee alone can do it; in the case of his death, his legal representative.
Discharge of Contract
Performance – both parties fulfill their obligations.
Agreement or consent – novation: when a new contract replaces the old one;
alteration: where ne or more terms of the contract are changed; recission:
where all or some of the terms of the contract are rescinded; waiver: one of
the parties intentionally relinquishes his rights; and merger: when an inferior
right merges with the superior one.
Lapse of time – not enforced within a specified time – Limitation Act, 1963.
Impossibility of Performance – Doctrine of Frustration – destruction of
subject matter; non existence or non occurrence of a particular state of thing;
death or incapacity for personal service; change of law(current US and India
tariff issues); and outbreak of war. 19
Operation of Law – death; merger; insolvency; unauthorized alteration of
terms; and statutes of limitation.
Accord and satisfaction – parties agree to accept performance that is
different from the performance originally promised.
Breach of contract – breaking or violating obligations of contracting parties.
Anticipatory breach / breach by repudiation – when one party states before
the arrival of the date fixed for performance, without justification that it
cannot or will not carry out the material part (condition) of the contractual
obligation or that it intends to perform in a way that is inconsistent with the
terms of the contract – effect being rescind the contract and claim damages
or treat the contract in force and wait for the time of performance by still
giving the breaching party an opportunity else claims damages then.
Actual breach – effect being breach of condition (material breach) wherein
injured party can claim damages and an option to treat the contract as
discharged. Breach of warranty (non-material breach) can claim only
damages but cannot repudiate or treat the contract as discharged.

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Quasi Contracts
Supply of Necessaries
Payment by an interested person
Obligation to pay for a non gratuitous act
Responsibility of finder of goods
Remedies for Breach of Contract
Rescission
Damages
Quantum Meruit
Specific Performance
Injunction
Rectification

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Special Contracts
1. Indemnity – Its is a contract where a person promises to save the other
from the loss caused by him by the conduct of the promisor himself or by the
conduct of any other person. Parties involved are the indemnifier and the
indemnity holder.
2. Guarantee – It is an oral or written contract to perform the promise or
discharge the liability of a third person incase of his default. Parties involved
are the principal debtor, creditor and surety.
3. Bailment – It is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose ids accomplished,
be returned or otherwise disposed off according to the direction of the person
delivering them. Parties involved are the bailor and bailee.
4. Pledge – The bailment of goods as security for payment of a debt or
performance of a promise.
5. Agency – An agent is a person employed to do any act for another, or to
represent another in dealing with third persons. The person for whom such
act is done, or who is represented, is called the principal. 22