Contract act 1872

CONTRACT ACT 1872

BY
MRS. NEHA VERMA RAHATE

CONTENTS

• What is a Contract?
• Valid Contract and its essential
characteristics
• Classification for Contract
• Various forms of Quasi Contracts

AGREEMENT
• The contract is formed only on the basis of
agreement. It is a combined effect of offer and
acceptance.
AGREEMENT= OFFER+ ACCEPTANCE

According to section 2(e), Agreement is a promise
or set of promises forming consideration for each
other.

CONTRACT
• According to sec.2(h), CONTRACT
may be defined as
“An Agreement enforceable by law ”.
• These agreements creates Rights and
Obligations between the Parties which can
be claimed in the Court of Law.(Legal
Obligation)

THREE MAJOR COMPONENTS
OF A CONTRACT
1. AGREEMENT

3. OBLIGATION

5. ENFORCEABILITY

• Agreement + Legal Obligation Contract

• Agreement + Social Obligation Contract

ESSENTIALS OF A VALID
CONTRACT
• An Agreement has to fulfill the following legal
conditions to become a Contract –
• Two or more parties (Offer and Acceptance)
• Intension to create a Legal Relationship
• Lawful Object
• Capacity of parties (Major, Sound mind)
• Free Consent (understanding of terms and
conditions)

ESSENTIALS OF A VALID
CONTRACT CONTINUED..
6) Writing and Registration and Duly stamped (not
Oral Contract)
7) Certainty (proper terms and conditions)
8) Possibility of the Performance (it should not be
impossible)
9) Must not have been disqualified by any law

CLASSIFICATION OF
CONTRACTS
ON THE BASIS OF

CREATION EXECUTION ENFOECEABILITY
(FORMATION) (PERFORMANCE) (VALIDITY)

-EXECUTED -VALID
- EXPRESS

-EXECUTORY - VOID
-IMPLIED

-PARTLY - VOIDABLE
- QUASI
- ILLEGAL

ON THE BASIS OF FORMATION
1. EXPRESS CONTRACT-
Express contract is one which is made by
words spoken or written at the time of
formation .
Example1
X says to Y, will you buy a car for Rs. 100000? Y says to X, I
am ready to buy you car for Rs. 100000. It is an express
contract made orally.
Example 2
X writes a letter to Y, I offer to sell my car for Rs. 100000 to
you. Y send a letter to Y, I am ready to buy you car for Rs.
100000. It is an express contract made in writing.

2. IMPLIED CONTRACT
An implied contract is one which is inferred
from the acts or conduct of the parties or from
the circumstances of the cases.
Example :
X, a coolie in uniform picks up the bag of Y to carry it
from railway platform to the taxi stand, without being
told by Y to do so and Y allows him. In this case there
is an implied offer by the coolie and an implied
acceptance by the passenger. Now, there is an
implied contract between the coolie and the
passenger and he is is bound to pay for the services of
the coolie.

3. QUASI CONTRACTS
• These contacts are based on the principles of
Justice and Equity.
• Quasi means ‘ as if ’ or ‘ similar to ’
• Also called as ‘ Implied Contracts’
• It is just like a Contract as it also creates legal
obligations.
• But the legal obligation created by Quasi Contract do
NOT rest on any Agreement, but are IMPOSED BY
LAW.
Example:
Where certain books are delivered to a wrong address then they
are under an obligation to either pay for them or return them.

ON THE BASIS OF PERFORMANCE
1. EXECUTED CONTRACT-
It is a contract where both the parties to the
contract have fulfilled their respective
obligations under the contract.
Example:
X offers to sell his car to Y for Rs. 1 lakh.
Y accepts X’s offer. X delivers the car to Y and
Y pays Rs. 1 lakh to X. It is an executed
contract.

2. EXECUTORY CONTRACT-
It is a contract where both the parties to the
contract have still to perform their respective
obligations.

Example:
X offers to sell his car to y for Rs. 1 lakh.
Y accepts X’s offer. If the car has not yet been
delivered by X and the price has not yet
been paid by Y, it is an Executory contract

3. PARTLY EXECUTED AND PARTLY
EXECUTORY CONTRACT:
It is a contract where one of the parties to the
contract has fulfilled his obligation and the
other party has still to perform his obligation.
Example:
X offers to sell his car to y for Rs. 1 lakh on a
credit of 1 month. Y accepts X offer. X sells the
car to Y. Here the contract is executed as to X
and Executory as to Y.

ON THE BASIS OF VALIDITY
1. VALID CONTRACT-
contract which satisfies all the conditions
prescribed by law is a valid contract.
Eg. X offers to marry Y. Y accepts X offer. This
is a valid contract.

5. VOID CONTRACT- [sec 2 (g)]
A void contract is a contract which is valid when
entered into but which subsequently became
void due to impossibility of performance, change
of law or some other reason.
Eg. X offers to marry Y, Y accepts X offer. Later
on Y dies. This contract was valid at the time of its
formation but became void at the death of Y.

3. VOIDABLE CONTRACT:
• An arrangement which is enforceable by
law at the option of one or more of the
parties thereon but not at the option of
other or others, is a voidable contract.
• If the essential element of free consent is
missing in a contract, the law confers right on
the aggrieved party either to reject the contract
or to accept it. However, the contract continues
to be good and enforceable unless it is repudiated by
the aggrieved party.

• Eg. X threatens to kill Y, if the does not sell his
house for Rs. 1 lakh to X. Y sells his house to X
and receives payment. Here, Y consent has been
obtained by coercion and hence this contract is
voidable at the option of Y, the aggrieved
party. If Y decides to avoid the contract he will
have to return Rs. 1 lakh which he had received
from X. If Y does not exercise his option to
repudiate the contract within a reasonable
time and in the meantime Z purchases that
house from X for 1 lakh in good faith, Y cannot
repudiate the contract.

4. ILLEGAL CONTRACT:
An illegal contract is unlawful.
Such an agreement cannot be enforced by
law.Thus, illegal agreements are always
void -ab- initio (i.e. void from the very
beginning)
Eg. X agrees to Y Rs.1 lakh to kill Z. Y kills Z
and claims Rs. 1 lakh. Y cannot recover the
amount from X because the agreement between
X and Y is illegal and also its object is unlawful.

QUASI CONTRACTS
• Quasi means ‘ as if ’ or ‘ similar to ’
• It is just like a Contract as it also creates legal
obligations.
• But the legal obligation created by Quasi Contract
do NOT rest on any Agreement, but are
IMPOSED BY LAW.
- Inspite of not having contract between parties , the
rights and obligations are created by operation of
law rather than offer and acceptance ie Agreement.

TYPES OF QUASI CONTRACTS
Sec 68 to 72
1. Claim for supply of necessaries to person
incapable of contracting
2. Reimbursement of money paid, in which he is
interested
3. Obligation of person to pay for enjoying
benefit of non-gratuitous act
4. Responsibility of finder of goods
5. Liability of a person to whom money is paid or
thing delivered by mistake or under coercion

1. Claim for supply of Necessaries to
person incapable of contracting
• If a person incapable of entering into a
contract or any one who is legally bound to
support, is supplied by another person with
necessaries suited to his condition in life,
the person who has furnished such
supplies is entitled to be reimbursed from
the property of such incapable person.

• Illustrations:
(a) A supplies B, a lunatic, with necessaries
suitable to his condition in life. A is
entitled to be reimbursed from B’s
property.

(b) A supplies the wife and children of B, a
lunatic, with necessaries suitable to their
condition in life. A is entitled to be
reimbursed from B’s property.

2. Reimbursement of money paid,
in which he is interested
• A person who is interested in the
payment of money which another
is bound by law to pay, and who
therefore pays it, is entitled to be
reimbursed by the other.

• Illustrations:
The house in which A lives as a tenant
is declared to be sold by municipal
corporation for non payment of tax by
the owner of the house.
A makes the payment in order to
protect his interest.
A is conferred a legal right to recover
such payment from the owner of the
house.

3. Obligation of person to pay for
enjoying benefit of non-gratuitous act
• Where a person lawfully does anything
to another person, or delivers anything
to him not intending to do so
gratuitously and such other person
enjoys the benefit there of, the latter is
bound to make compensation to the
former in respect of or to restore the
thing so done or delivered.

• Illustrations:

A, a tradesman, leaves goods at B’s
house by mistake. B treats the goods as
his own. He is bound to pay A for
them.

4. Responsibility of finder of
goods

• A person who finds goods belonging
to another and takes them into his
custody, is subject to the same
responsibility as a bailee.

5. Liability of a person to whom money
is paid or thing delivered by mistake or
under coercion
• A person to whom money has been paid, or
anything delivered by mistake or under coercion,
must repay or return it.
• Illustration:
A and B jointly owe Rs. 100 to C. A alone pays the
amount to C, and B not knowing this fact, pays
Rs.100 over again to C. C is bound to repay the
amount to B

Discharge of contract
• Discharge of contract means termination
of the contractual relationship between
the parties. A contract is said to be
discharged when it ceases to operate,
i.e., when the rights and obligations
created by it comes to an end.

A CONTRACT MAY BE DISCHARGED

1. By performance
2. By mutual agreement or consent
3. By impossibility of performance
4. By lapse of time
5. By operation of law
6. By Breach of contract

Discharge by performance
• Performance means the doing of that, which is
required by the contract.
• Discharge by performance takes place when the
parties of the contract perform wit h in t h e
t ime a n d in t h e ma n n e r
p r e s c r ib e d .
• In such a case, the parties are discharged and
the contract comes to an end. But if only one
party performs the promise, he alone is
discharged.
• Such a party gets a right of action against the

• Performance of a contract is the most
usual mode of discharge.
• It may be by

- Actual performance and
- Attempted performance or tender.

ACTUAL PERFORMANCE
• When both the parties perform their promises,
the contract is discharged.
• Performance should be complete, precise and
according to the terms of the agreement.
• Most of the contract are discharged by
performance in this manner.

Attempted performance or tender

• Tender is not actual performance but is
only an offer to perform the obligation,
but the promisee refuses to accept the
performance.

Discharge by Mutual Agreement
or Consent

• Since a contract is created by mutual
agreement, it can be discharged by
mutual agreement

Discharge by Mutual Agreement
or Consent
• Types of discharge by agreement or
consent
• a) Novation
• b) Rescission
• c) Alteration
• d) Remission
• e) Waiver

Novation (sec. 62)
• Novation means the substitution of a new contract for
the original contract.
• Such a new contract may be either between the s a me
p a r t ie s o r b e t we e n d if f e r e n t
p a r t ie s
• The consideration of new contract is the discharge of
the original contract.
• Example:
A owes money to B under a contract. It is agreed
between A,B and C that B shall henceforth accept C as
his debtor, instead of A. The old debt of A and B no
longer exists and a new debt from C to B has been

Rescission (sec. 62)
• Rescission of a contract takes place when the
parties to a contract may decide that they will
forget the contract and will not bring a new
contract into existence to replace it.
• Cancellation of contract by any party or all the parties.
• Example:
X promises Y to deliver goods on 1st Oct at his go-
down. And Y promises to pay for it on 1st Nov. X does
not supply the goods. Y may rescind the contract.

Alteration
• Alteration means a change in the terms of a
contract with mutual consent of the parties.
Alteration discharges the original contract and
creates a new contract. However, parties to the
new contract must NOT change.
• Example:
X promises to sell and deliver 100 bags on 1st
Oct. And Y promises to pay on 1st Nov.
Afterwards X and Y mutually decide that the
goods shall be delivered in 5 equal
installments at Z’s godown.

Remission (sec.63)
• Remission means acceptance by the promisee of
a lesser fulfillment of the promise made.
• In other words it may be defined as acceptance
of a less than what was contracted.
• Example
A owes to B Rs 5000. A pays to B Rs 2000. B
accepts it in full satisfaction. The old debt is
discharged.

Waiver
• A waiver is the voluntary relinquishment or
surrender of some known right or privilege.
• A contractual party might waive the performance
of a contractual duty by another party. A waiver
doesn't have to be written or even spoken -- a party
may waive a contractual duty by conduct.
• Example
A landlord fails to object to a tenant paying rent 10
days late every month, he may be considered to have
voluntarily waived on-time payment by the tenant.

Discharge By impossibility of
performance
• Section 56, which deals with this
question, mentions two kinds of
impossibility.
• Firstly, impossibility existing at the time
of the making of the contract.
• Secondly, a contract which is possible of
performance and lawful when made, but
the same becomes impossible or
unlawful thereafter.

1. INITIAL IMPOSSIBILITY
• An agreement to do an act impossible in itself is
void. The object of making any contract is that
the parties to it would perform their respective
promises. If a contract is impossible of being
performed, the parties to it will never be able to
fulfil their object, and hence such an agreement
is void.
• Example,
A agrees with B to discover treasure by magic. The
performance of the agreement being impossible, the
agreement is void. Similarly, an agreement to bring a dead
man to life is also void.

2. SUBSEQUENT IMPOSSIBILITY
• The performance of the contract may be
possible when the contract is entered into but
because of some event, which the promisor
could not prevent, the performance may become
impossible or unlawful. Section 56 makes the
following provision regarding the validity of
such contracts :
• “A contract to do an act which after the
contract is made, becomes impossible, or by
reason of some event which the promisor could
not prevent, becomes void when the act,
becomes impossible or unlawful.”

2. SUBSEQUENT IMPOSSIBILITY
Examples..

• A and B contract to marry each other. Before
the time fixed for marriage, A goes mad. The
contract becomes void.

• A contracts to act at a theatre for six months in
consideration of a sum paid in advance by B.
On several occasions A is too ill to act. The
contract to act on those occasions becomes
void.

Discharge by lapse of time
• The limitation act, 1963 lays down that a
contract should be performed within a
specified period, called period of limitation.
If it is not performed, and if no action is
taken by the promisee within the period of
limitation, he is deprived of his remedy at
law.(ie the contract is terminated)
• For example: There is a contract of loan between A and
B. Her limitation period is 3 years. After completion of
3rd year discharge of contract takes place and debtor –
creditor relationship comes an end. Thus it becomes
time bared debt which cannot be recovered by means
of legal proceedings.

Discharge By operation of law
• A contract may be discharged independently of the wishes of
the parties, i.e., by operation of law. This includes discharge–
a)by death (in the case of contracts for personal service).
b)By insolvency.
c)By unauthorized alteration of the terms of a written
agreement.
d)By the identity of promissor and promisee.
For example: X has drawn a bill on Y. Here X has right to
collect amount on the bill and Y has liability to pay. There after
X has endorsed the bill to Z. Where Z has got the right and
liability is with Y. Assume that Z has endorsed the bill to Y.
Now right as well as liability are with Y. This situation
discharges the contract

DISCHARGE BY BREACH OF
CONTRACT
• When a party having a duty to perform a
contract fails to do that, or does an act
whereby the performance of the contract by
him becomes impossible, or he refuses to
perform the contract, there is said to be a
breach of contract on his part.
• On the breach of contract by one party, the
other party is discharged from his obligation to
perform his part of the obligation.

• He also gets a right to sue the party
making the breach of contract for
damages for the loss occasioned to him
due to the breach of contract.
• The breach of contract may be either
ACTUAL, i.e., non-performance of the
contract on the due date of performance,
or ANTICIPATORY, i.e., before the due
date of performance has come.

• For example

A is to supply certain goods to B on 1st
January. On 1st January A does not supply
the goods. He has made actual breach of
contract.
On the other hand, if A informs B on 1st
December that he will not perform the
contract on 1st January next, A has made
anticipatory breach of contract

REMEDIES OF BREACH OF
CONTRACT

• A Remedy is the course of action
available to an aggrieved party (ie
the party not at default) for the
enforcement of a right under a
contract.

Remedies for breach of contract

• Cancellation or Rescission
• Specific performance
• Injunction
• Quantum Meruit
• Damages

Cancellation or Rescission
• When the contract is broken by one
party, the other party is free to rescind
and refuse further performance.
• In such a case aggrieved party is
discharged from all the obligation
under the contract and is entitled to
claim compensation sustained because
of the non-performance of the contract.

• Example:
• A, a singer contracts with B, manager of
theatre, to sing at his theatre every night in
every week during the next two months.
• B promises to pay her Rs. 1K for each night
performance.
• On the sixth night A willfully remains absent
from the theatre
• B in consequence rescinds the contract.
• B is entitled to claim compensation for the
damage which he has sustained through the
non-fulfilment of the contract.

Suit for Damages
• Here the aggrieved party will go to the court
of law and ask for damages or compensation
for the breach of contract.
• They are monetary compensation allowed
for the loss suffered by the aggrieved party
• The object is not to punish the party but to
make good the financial loss suffered by the
aggrieved party.

Damages are of four kinds-

• General or ordinary damages
• Special damages
• Vindictive or exemplary
damages
• Nominal damages

General or Ordinary damages
• In a contract for sale of goods, the
measure of ordinary damages is the
difference between contract price
and the market price of such goods
on the date of breach

• Example:
On 1st Dec, X contracted to sell and deliver
50 tons of wheat @ Rs 8000 per ton to Y on
1st Jan. On 20th Dec, Y afterwards, contracted
to sell those goods to Z @ Rs 10000 per ton.
X failed to deliver on 1st Jan, when price of
wheat was 9500 per ton.
• Y is entitled to recover Rs 75000 and not the
profit as it is the indirect consequence of the
breach of contract.

Special damages
• It would be the compensation for the special
losses caused to the aggrieved party by the
special circumstances attached to the
contract.
• The phrase “special damages” is often used
interchangeably with the term
“consequential damages”. This is to
indicate that the damages are the
“consequence” of a contractual breach,
though they might not have been directly
caused by the breach of contract.

• Example:
• A, a builder, contracts to erect and finish a house
by 1st Jan, in order that B may give possession of it
at that time to C. A is informed of the contract
between B and C. A builds the house so badly that
before 1st Jan it falls down, and has to be rebuilt by
B, who, in consequence, loses the rent which he
was to have received from C, and is obliged to
make compensation to C for the breach of his
contract.
• A must make compensation to B for the
cost of rebuilding, for the rent lost and for
the compensation made to C.

Punitive or Vindictive Damages

• Punitive damages are damages that
punish the wrongdoer in a breach of
contract lawsuit. They aren't based on
actual economic loss like compensatory
damages.

• Example:

i) Breach of promise to marry (damages
are calculated on mental injury
sustained)
ii) wrongful dishonour of cheque by a
banker

Nominal damages
• Nominal damages are awarded where
aggrieved party has been injured but did not
incur any financial losses. They are not
intended to compensate the victim but
rather are awarded to vindicate aggrieved
party’s rights.
• These are called nominal damages, because
they are very small, say one rupee or one
dollar.

Example:

• An injured, who proves that a defendant's
actions caused the injury but fails to submit
medical records to show the extent of the
injury may be awarded only nominal
damages. The amount awarded is generally
a small, symbolic sum, such as one dollar

Suit for Specific performance
• It means demanding the court’s direction to
the defaulting party to carry out the promise
according to terms of the contract.
• Example:
• X agreed to sell an old painting to Y for
Rs 50,000. Subsequently, X refused to sell
the painting. Here, Y may file a suit against
X for the specific performance of the
contract.

Suit for Injunction
• It means demanding for court’s stay order.
• Injunction means an order of the court
which prohibits a person to do a particular
act.
• Where a party to a contract does something
which he promised not to do, the court may
issue an order prohibiting him from doing
so.

Example:

• W agreed to sing at L’s theatre only
during the contract. But he makes
contract with Z to sing at another
theatre and refused to perform the
contract with L.
• W could be restrained by injunction
from singing for Z.

Suit for Quantum Meruit
• Quantum Meruit means ‘as much as earned’
• Right to Quantum Meruit means a right to
claim the compensation for the work already
done.
• Example:
• C an owner of a magazine, engaged P to write a
story to be published by installments in his
magazine. After a few installments were published,
the publication of the magazine was stopped. It
was held that P could claim payment for the part
already published.

Contract act 1872

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