Contract Act - Business law

Introduction of LAW
A system of “rules and regulations made and
enforced by a government that regulate conduct
of the people within a society”.

Objectives to be Achieved by Law
• Objectives to be achieved by law may be broadly stated as follows:
1. To assure certain basic rights to the citizens
2. To ensure peace and internal security
3. To regulate international relations
4. To establish socio-economic justice
5. To regulate business, trade and employment
6. To regulate social customs and practices
7. To prevent crime and to punish offenders.

Need of law?
Although it is not possible for the citizen of the
country to have knowledge of every branch of law,
yet it becomes necessary to know the law to which
he is subject at a given point of time. One must
remember that ignorance of law is no excuse .

Classification of Law
• The various braches of law include, among others, the
following:
1. International law
2. Constitutional law
3. Criminal law
4. Civil law

International law
• International law is the law that governs laws between different
countries. It regulates the relationship between various
independent countries and is usually governed by treaties,
international customs and so on.
Examples of International law include the Universal Declaration
of Human Rights, the African Charter on Human and People’s
Rights etc.

Constitutional law
• Constitutional law It is concerned with defining the powers
of and the relationship between the principal institutions of
state. This part of the law is also concerned with the
relationship between the state, its institutions and the
individual citizen and, in particular, the fundamental rights
of citizens.

Criminal law
• It deals with conduct on the part of the individual which
the state regards as harmful to society generally and for
the control of which the state assumes responsibility.
• Criminal law or Law of Crimes is the branch of public
Law. It deals with offenses punishable by State and is
enforced in the name of the State.

Civil law
• Civil law is concerned with the rights and duties of
Individuals to one another and provides a system of
remedies.e.g.LawofProperty,LawofContractetc.

Definition of Contract
• According to Section 2 (h), “Contract is an agreement
enforceable by law”. Agreement means a promise. It is
created when a person makes an offer to another person
and other accepts it for consideration.
Agreement = Offer + Acceptance of Offer

Stage 1: Contract Request:
• Contract Life Cycle Management starts with the Contracts
Requesting process where one party requests for or initiates
the contracting process and subsequently uses that
information for drafting or authoring the contract document.
• When drafting or authoring the terms of the contract, it’s
important to pay attention to specific wording. Information
on what the contract should contain and critical dates such as
contract start date, end date and any milestones.

Stage 2: Contract Authoring, Review
and Red lining, Contract Negotiation
• IntheContractAuthoringorDraftingstage,contractoragreement
document is created which includes all clauses, terms and
conditions.ItisusuallyinthisstageContractApproversandSigning
parties are determined and approver and signing details are
capturedinthecontractdocument
• ContractorAgreementDocument,usuallyinMicrosoftWordor
AdobePDFformatsavedinthedocumentmanagementsolution.

Stage 3: Approval and Lawyer or
Legal Review
• Agreement document prepared in previous step is
submitted to internal or external approvers and then once
they approve the document to proceed further,
Contractual document moves to the next step in the life
cycle.
• Contract Approvals from designated stake holders.

Stage 4: Execution or Agreement
Signing
• Contract document which is approved is sent to
respective parties for signature either online or using
manual process.
•

Stage 5: Contract Database or
Repository Storage
• Once the contract document is signed it is stored
permanently in a easy to retrieve agreement database.
Both contractual meta data and documents are indexed
and saved for future reference.
• Contract Document saved in document repository for
future reference and accessible through contract

Stage 6: Records Management
• This stage enables complete control of all critical business
documents through reliable storage of records with
backups and retention policy enforcement policies
providing confidence that your critical records are in
secure for global information management with high
compliance.

Stage 7: Easy Search and Retrieval
• This stage enables business users to quickly search, apply
filters and retrieve relevant documents from the contract
system.

Stage 8: User Activity and
Reporting
• Every stage captures user activity logs and the contract
meta data and documents are properly indexed for easy
retrieval. This stage ensures business users can quickly
and efficiently retrieve and mine contract data and
produce in depth reports.

Stage 9: Contract Renewal ,
Amendments and Disposition
• Once the contract reaches its end date , it must be
renewed to stay in active status. If the contract is not
renewed on time it could cause financial risk for the
parties involved in the contract.
• Contract Document renewed to a later expiry date.

Elements of Contract
1. Offer & Acceptance
2. Legal relation
3. Capacity
4. Free consent
5. Lawful consideration
6. Lawful object
7. Agreement not declared avoid
8. Certainty
9. Possibility of Performance
10. Legal formalities

1.Offer & Acceptance
•Offer (Proposal): “When one person signifies to
another his willingness to do or to abstain from
doinganythingwithaviewtoobtainingtheassent
oftheothertosuchactorabstinence,heissaidto
makeaproposal”.
•Acceptance: “When the person to Whom the
proposal is made, signifies his assent thereto, the
proposal is said to be accepted. A proposal when
acceptedbecomesapromise”

1.Offer & Acceptance
The terms offer and proposal mean the same thing. The
Contract Act uses the term proposal. Any agreement between
two or more parties has to begin with one party putting forth
a suggestion to other so that the other person or persons can
consider the same and decide whether to agree with the
same or not.
For example, A may say to B that he wants to sell his car for Rs,
60000/- and whether B is interested in buying the same. Here,
A is making an offer to B. Therefore, communication of a
lawful offer by one party is the first step towards the
formation of every agreement. It is obvious that without any
offer there cannot be any agreement

2. Legal relation
• The parties to the agreement must intend to create legal
relations among them. Agreements which are social or
friendly in nature, for example going for a picnic together
or agreement to lunch together etc. are the agreements
where there is no intention of the parties to create legal
relationship between them. As such, these agreements
are not contracts.

3. Capacity
The parties entering into agreement must be competent to
contracxt or must have legal capacity to enter into contract,
otherwise such agreement is not a contract and therefore not
enforceable bylaw.
The term capacity should not be confused with the
term ability. Any person may have the ability to enter into an
agreement, but he may not be competent to contract.

3. Capacity
For example, a minor person, i.e., one who has not
completed his age of 18 years may enter into an
agreement. But the Contract Act declares a minor to be
not competent to enter into contract, except under
certain circumstances. Therefore, the agreement entered
into by or with a minor cannot be a contract and
therefore not enforceable by law.

4.Free consent
• According to Sec.13, ‘When two or more persons agree on
same thing in the same sense, they are said to consent.’

5. Lawful consideration
Each party of an agreement must give or promise
something and receive something or a promise in return.
Consideration is the price for which the promise of the
other is sought. However, the price need not be in terms
of money. The consideration must be real and lawful.
Consideration is the price paid by one party for the
promise of the other.

6. Lawful object
The object of the agreement must be lawful and not
one which the law disapproves. If the object with
which an agreement is entered into is unlawful, it is
a case of illegal agreement, and obviously such
agreement cannot be a contract.

7. Agreement not declared void
There are certain agreements which have been expressly
declared illegal or void by the law. In such cases, even if the
agreement possesses all the elements of a valid agreement, the
agreement will not be enforceable by law
• For e.g ‘Agreement in restraint of marriage, or agreement in
restraint of trade, or a gambling agreement are some of the
examples of agreements which can never attain the status of
contract. They are declared to be void and not enforceable at
law

8. Certainty
• For a valid contract, the terms and conditions of an
agreement must be clear and certain.
• For e.g. ‘A’ agreed to sell 10 meters of cloth.There is
nothing to show, what type of cloth was intended.The
agreement is not enforceable for want of certainty of
meaning.

9. Possibility of Performance
• Agreementsmustbecapableofperformance.Anagreementtodo
anactimpossibleinitselfisvoid,i.e.,notenforceableatlaw.
• For example, A agrees with B to discover treasure by magic. The
agreementcannotbeenforced.

10.Legal formalities
• According to contract Act, a contract may be oral or in
writing. Although in practice, it Is always in the interest of the
parties that the contract should be made in writing so that it
may be convenient to prove in the court.
• For example, an oral agreement to buy or sell movable goods
is perfectly enforceable by law as it is a contract. However, an
agreement to buy or sell immovable property such as land or
building ,has to be in writing and also it has to be registered
with the competent authorities. If it is not written and
registered, such agreement will not be a contract and
therefore cannot be enforced in the court of law

•Classification of contracts

1. Enforceability/Validity
 Valid Agreement (Contract): A valid agreement is a contract
enforceable by law. It has all essentials of contract under
sec.10.
 Void Contract: In general sense, the term ‘void’ means
completely lacking something or empty. In legal sense, the
term means ‘having no legal force.’ Void contract, therefore,
means a contract which has no legal value or effect at
all. According to the Contract Act – ‘A contract which ceases
to be enforceable by law becomes void, when it ceases to be
enforceable.’

 Voidable Contract: A contract becomes voidable when
the consent of one party has been obtained by fraud, undue
influence, coercion or misrepresentation. Such contract is
voidable at the option of the party whose consent was so
obtained. However, the option to cancel the contract should
be exercised by the aggrieved party within a reasonable
time and before any third party interest is created.
For example, ‘A’ agreed to sell and deliver to ‘B’ 100 quintals of
sugar within 10 days. If ‘A’ does not supply the sugar
within the specified time, the contract is voidable at the
option of ‘B’

 Illegal Agreement: Agreement is illegal if it is not approved
by law, opposed to public policy, criminal or immoral in
nature. Such agreements are void ab initio and any
collateral agreement will also be void.
 Unenforceable Contract: If a contract cannot be enforced
due to some technical defects like incomplete legal
formalities, stamp, signature etc. it is called unenforceable
contract. As soon as technical defect is removed, contract
becomes enforceable.

2. FORMATION
Express contracts: Express contracts are those contracts
where the offer and acceptance constituting the contract
are made in words, spoken or written. So an agreement
made over telephone or through correspondence is an
example of express contract.

2. FORMATION
Implied contract: Implied contract is one which is entered
into by the parties not through the words, but through their
conduct or behaviour. Thus, when a porter in uniform
approaches you.
For example: At a railway platform a porter takes up your
luggage, and you show him the way to your compartment,
there is an implied contract between you and the porter,
under which you are required to pay for his services. Both
offer and its acceptance have been communicated not by the
words, but by the conduct

2. FORMATION
Quasi contract; is a term used for such contractual
relations between the parties which exist as if the
parties have entered into a contract, without there
being any contract between the two in the usual
sense. Unlike other contracts, there is no offer or
acceptance. The parties may not have met each
other ever before and yet the relations that emerge
between them are such as if they have entered into
contract. In fact, the term quasi contract is not used
under the Contract Act. It provides for the ‘certain
relations resembling those created by contract.

QUASI CONTRACT
• Quasi means almost or apparently but not reality or as if
it were.
• A quasi contact is a contarct that exists by order of a
court not by agreement of parties.
• Court creates quasi contacts to avoid the unjust
enrichment of a party in a dispute.

Sections in Law ( Quasi contract)
• Supply of necessaries(68)
• Payment of lawful dues by interested person(69)
• Person enjoying benefit of a gratuitous act(70)
• Finder of goods(71)
• Goods delivered by mistake(72)

3. PERFORMANCE
 Executed Contract: A contract in which all the parties have
performed their obligations, is an executed contract. E.g. X
sells his car to Y for 1 lakh. X gives the car & Y makes the
payment. It is executed contract.
 Executory Contract: A contract in which the parties still
have to perform their obligations, is called executory
contract.

3. PERFORMANCE
 Bilateral Contract: It is one in which both the parties
exchange a promise to each other. One party promises
to perform some act in the future in exchange for other
party’s promise to perform some act. It is similar to
executory contract. Each party is both promisor &
promisee.
 Unilateral Contract: A contract in which one party
promises to the other to do something if he performs
his desired work. E.g. A promises to pay Rs.100 by
advertisement to anyone who finds his lost bag.
Anyone can search his bag & bind A for payment. But A
cannot bind any one to search his bag.

Defining an Offer
• As per Section 2 (a) of the contract Act, “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
an offer”.
• Example • When A expresses his willingness to sell motor
care for Rs 10,000 with a view to get B’s acceptance, A is
said to make an offer.

Defining an Offer
• The word offer of the English law the word proposal of
the Indian Contract Act.
• The person making the offer is called the offeror and the
person to whom the proposal is made is offeree.
• When the offeree accepts the proposal he is called as
acceptor or promisor

Essential Characteristics of a valid
offer:
• The terms of an offer must be clear and certain or at least
capable of being made certain.
• Offer must be communicated to the offeree.
• An offer must be made with an intention of creating legal
obligations.
• Invitation to an offer is not an offer.

Essential Characteristics of a valid
offer:
• Special terms attached to an offer must be communicated.
• An offer may be to an individual or to the public at large.
• Offer may be expressed or implied.
• Offer must be made with a view to obtaining the assent of the
other party
• Offer may be conditional.
• Offer should not contain a term, the non compliance of which
would amount to acceptance.

Kinds of Offer
•Express offer: In so far as the proposal or
acceptance of any promise is made in
words, the promise is said to be express.
•Implied offer: In so far as such a proposal
or acceptance is made otherwise than in
words, the promise is said to be implied.

Kinds of Offer
• Specific offer: A Specific offer is an offer that is made to a
specific or ascertained person, this type of offer can only be
accepted by the person to whom it is made.
• General offer: If an offer is addressed to an unascertained
body of individuals, it is called general offer.
• Example • A issues a public advertisement that he would give
Rs 100 to anyone who brings back his missing dog, it is a
general offer. • A promises to give Rs 100 to B if he brings
back his missing dog, it is a special offer.

Kinds of Offer
• Counter offer: A counter order is rejecting the original offer
and making a new offer. Example – A offers to sell his house
for Rs 2 lakhs to B. B accepts to purchase it for Rs One lakh.
This is a counter offer.
• Continuous offer: An offer for a continuous supply of a
certain article at a certain rate over a definite period is called a
standing order. – Example – A, by means of an offer agrees to
supply coal to B at a particular price for a period of two years.
It is a continuous offer.

Kinds of Offer
• Cross offer: When two parties make identical offer to
each other in ignorance of each other’s, such offer is
called cross offer. Example – A by letter offers to sell his
car to B for Rs 50,000. B by letter offers A to buy the same
car for Rs. 50,000. It is a cross offer.

Acceptance
• Definition Section 2 (b) of the contract Act defines
‘Acceptance’ as follows: “When the person to whom the offer is
made signifies his assent thereto, the offer is said to be
accepted.”
• The offeree, when he accepts the offer, is called the acceptor.
• Acceptance can be made by words, spoken or written. An offer
can be accepted only by the person to whom it is made.

Legal rules of governing a valid acceptance
Acceptance must be absolute and unqualified.
• Example – A says to B, “ I offer to sell my house
for Rs. 2 Lakhs.” B replies “ I will purchase it only
for Rs 1 Lakh”. It is only a partial acceptance.
Acceptance must be communicated to the
offeror.
Acceptance must be made within a reasonable
time.
Acceptance must be communicated in some
usual and reasonable manner.

Legal rules of governing a valid acceptance
Acceptance may be expressed or implied.
Acceptance must be made by the offeree.
Acceptor must be aware of the proposal at the time of the offer.
Acceptance must be made only after the offer is made.
Acceptance must be given before the offer lapses or is revoked.
Acceptance concludes the contract.

CAPACITY OF PARTIES
• As per Sec. 10 an agreement becomes a contract if it is
entered into between the parties competent to contract.
• As Sec. 11 declares following persons to be incompetent
to contract;
• a) Minors
• b) Persons of unsound mind
• c)Persons disqualified by from contracting

A) Minors
• Minor’s agreement is absolutely void and minor cannot bind
himself by a contract. But in the following cases, he attains
majority when he completes 21 years:
• When guardians has been appointed for minor under
Guardians &Wards Act 1890.
• When superintendence of minor’s property is under court of
wards.

Law relating to minor’s Agreements:
1. Agreement with minor is void ab initio.
2. No Ratification after attaining majority: Ratification means
approving a past contract. Minor’s agreements are void ab
initio so they cannot be ratified.
3. Minor can be a beneficiary or can take benefit out of a
contract. He cannot be asked to return or mortgage his
property.
4. A minor can plead minority i.e. even if he does something
wrong he cannot be held responsible for it, in the court.

B) Persons of Unsound Mind
• According to Sec. 12, a person has sound mind if:
• He is capable of understanding the contract at the time of
making it.
• He is capable of making rational judgment i.e. effect of
contract on his interests.
Types: Following are the persons who are considered as
persons of unsound mind under the act:
1. Idiot: He is a person who has lost his mental ability to
understand even ordinary things. It is permanent.

Types of Unsound Mind Persons
2. Lunatic: He is a person who is mentally affected due to
strain or personal shocks. It is temporary & can be cured. He
can make valid contract during lucid intervals.
3. Drunken or intoxicated person.
4. Hypnotized person.
5. Mental decay- There may be mental decay due to old age
or poor health and such person is not capable of making a
valid contract

C) Persons Disqualified by Law
• The following persons are disqualified by law from entering
into a contract:
1. Foreign Ambassadors: They have full capacity to contract
in India but they cannot be sued in our courts unless central
government permits.
2. Alien Enemy: It means a foreign citizen living in India.
Contract with alien friend is valid subject to some
restrictions. When alien is declared alien enemy (declaration
of war) he cannot contract.

3.Companies: Company can only contract
through his human agents. Company’s
contractual capacity is determined by “Object
Clause” of its memorandum of association.
Contract made outside its scope is void.
4.Married Women: She can enter into a
contract but her personal property
(Streedhan) can be made liable but not
property of her husband. A husband is liable
for contract made by his wife for supply of
necessaries of life. In this case, she is an agent
of her husband by necessity.

5. Convicts: While imprisonment, convict cannot enter
into contract & cannot sue on contracts made before
conviction. If he gets a license i.e. ticket of leave he can
lawfully contract. After imprisonment he can enter into
contract.
6. Insolvent: Person declared insolvent cannot contract.
His official receiver appointed by court can enter into
contracts, sue & be sued on his behalf.

Definition of Consideration
• Section 25 of the Indian Contract Act, 1872 says that “an
agreement made without consideration is void.” So,
Consideration is necessary for the formation of contract i.e., a
valid contract must include consideration for every party
involved[1].
• Blackstone: According to Blackstone “Consideration is the
recompense given by the party contracting to the other”[2]

Definition of Consideration
• Pollock: In the words of Pollock, “Consideration is the price
for which the promise of the other is bought, and the promise
thus given for value is enforceable”[3]
• Justice Patterson: “Consideration means something which is
of some value in the eyes of the law. It may be some benefit
to the plaintiff or some detriment to the defendant”[4]

Legal Rules Regarding Consideration
Consideration must move at the desire of the
promissor: an act forming consideration that
must be done at the desire or request of the
promisor. If it is done unless a person offers to
do something how can he be made liable to pay
for that.
• Example: A polished B’s car without any request
from B. is B liable? Obviously not, as the polish
on B’s car was done without his request.

 Consideration may move from promisee or any
other person: The consideration may be given by the
promisee or any other person on his behalf.
• Example: A father gifted the whole of his property to
his daughter on the condition that she should pay a
certain sum of money annually to her uncle(father’s
brother) on the same day, the daughter entered into
an agreement with her uncle and agreed to pay the
annually. Later on, the daughter refused to pay the
amount that the uncle not received any consideration.
The court held that the consideration was paid by the
father on behalf of her uncle. Therefore, the uncle was
entitled to recover the annuity.

 Consideration may be forbearance: This means that the
consideration may be a promise not to file a legal suit
against the person.
• Example: A’s scooter is damaged by B negligently driving his
car. B promises to pay Rs.1000 as repair charges for the
scooter if A does not sue him in a court of law. Here, A’s
forbearance to sue B is a good consideration.

 Consideration may be past, present or future.
• Past: when a consideration by a party for a present promise
was given in the past. Example: A found B’s purse and gave it
to him . B promised to give A Rs.50 as a reward. Here, for B’s
promise, the act of A in finding B’s purse is the past
consideration.
• Present consideration: when the promisor receives
consideration simultaneously with the promise, it is present
consideration.
• Example: A purchase goods by paying money in cash here,
the consideration is present consideration.

• Future consideration: When consideration for a promise
is rendered in future it is future consideration
• Example: A agreed to sell and deliver certain goods to B
after a week at agreed price. B agreed to pay the price
after fifteen. days. Here, as the price and the ownership
of goods are to be Transferred in future. Therefore the
consideration in future For both the parties

Consideration need not to be adequate: It is
not Necessary that there must be full return for the
promise.
Example: A agreed to sell his watch worth Rs.100 only for Rs.10
.A’s consent to the agreement was given freely .the
Consideration, though inadequate, will not affect the
validity Of the contract.

Consideration must be real and not illusory:
consideration must be real, it has some value in the eye of
law . it should not be illusory Example: A promised to pay
Rs.500 to B if he brings a star from the sky to earth. Here,
consideration for A’s promise to pay Rs. 500 to B is “to bring
a star from the sky”. The contract is void as the
consideration is illusory. This promise is also physically
impossible to perform

8. It must be something which the promisor is not already
bound to do: means preexisting legal and
contractual obligations cannot be regarded as good
consideration
• Example: A promised to pay Rs. 1000 extra to a
lawyer for winning the suit. A is not bound to pay
Rs.1000 even if he wins the case . payment of one
thousand rupees extra in this case is not a good
consideration because the lawyer was legally bound
to do.

 Consideration must not be illegal , immoral ,or opposed
to public policy: means the consideration must be lawful
• Example: A promised to pay Rs. 500 to B if he beats C. the
agreement is void as the consideration involves an injury to C,
which is unlawful.

Privity of a contract
• The doctrine of privity of a contract is a common law
principle which implies that only parties to a contract are
allowed to sue each other to enforce their rights and
liabilities and no stranger is allowed to confer
obligations upon any person who is not a party to
contract even though contract the contract have been
entered into for his benefit.

Free Consent Definition
• According to section 13.Two persons are said to have
consented when they agree upon the same thing in the
same sense.
• In English law, this is called ‘consensus–ad-idem’.

Free Consent
• Free consent when it is not caused by any of the
following :
1. Coercion (Section15)
2. Undue influence(Section16)
3. Fraud(Section17)
4. Misrepresentation(Section18)
5. Mistake(Section 20, 21, 21)

1. Coercion (Section15)
• It means threatening or use of physical force against a person
to compel him to enter into a contract. E.g. Alia Slapped Bhim
& dislocated some of his teeth & threatens to repeat the
same if Bhim does not lend him Rs. 30,000. The contract is
caused by coercion.
• Essential Elements:-
Committing or threatening to commit any act forbidden by
Indian Penal Code;- E.g. murder, theft, physical compulsion.
Threat of suicide is coercion.

Coercion (Section15)
Unlawful detaining of any property or unlawful threatening
to detain any property.
The intention must be to compel the other person to enter
into a contract. E.g. A beats B to take revenge for his insult.
This is not coercion.
Coercion may be from the party or from any other
person/stranger.
• Effects: 1) Contract becomes voidable, at the option of the
party whose consent is taken by coercion.
• 2) Restitution: Aggrieved party can restore the benefits given.

• It is a kind of moral coercion. When relation between parties
are such that one party is in a position to dominate the will of
the other & use that position to obtain advantage over the
other.This is undue influence.
• Essential Elements: -
There must be close relation between the parties.
One party should be in the position to dominate the will. It
includes following situations: -
a) Real authority over the other like master & servant, doctor
& patient.

b) When relation of trust & confidence exist between
parties. E.g. father & son, husband & wife.
c) Undue influence can be used against the person
whose mental capacity is affected by old age,
illness etc.
3)The intention should be to take undue advantage.
4) Misuse of position to take advantage.
• Effects: (1) Contract is voidable at the option of
aggrieved party.
• (2) Benefit received is restored to the aggrieved
party.

3. Fraud(Section17)
• Fraud means willful misrepresentation or concealment of
material facts. The intention is to deceive (cheat) the other
party & induce him to enter into an agreement. It include the
following acts:
i. Suggestion of that which is not true i.e. given by person
who does not believe it to be true.
ii. Concealment of fact by one who has knowledge of it.
iii. Promise made without any intention of performing it.
iv. Such act which law declares to be fraudulent.

Fraud(Section17)
• Essential Elements:-
Fraud may be done by a party to the contract or his agent.
There must be representation which is false. E.g. A intends
to deceive B & falsely represents that the car which he
offers for sale is imported but actually it is Indian.
False representation must be of material fact, not an
opinion.
A promise made without intention to perform is a fraud.
The intention must be to induce the other party to act
upon false representation.
The other party must have been relied upon the statement
& must have been deceived & suffered some loss.

Fraud(Section17)
• Effects:
Aggrieved party has the right to rescind (declare invalid) the
contract (voidable).
Sue for damages or loss suffered.
Benefit received is restored.
Aggrieved party can insist for performance & ask to put him
in a position in which he would have been if representation
made had been true.

• Any innocent or unintentional false statement of fact made
by one party to the other during negotiation of contract is
called misrepresentation.
• Example: A says to B who intends to purchase his land, “my
land produces 10 quintals of wheat per acre.” A belief the
statement to be true, although he did not have sufficient
ground for the belief. Later on, it transpires that the land
produces only 7 quintals of wheat per acre. This is a
misrepresentation.

• Essential Elements:
Misrepresentation must be of fact & not mere opinion.
Intention should not be to deceive the other party.
Effects:)
Contract is voidable at the option of aggrieved party.

Mistake means a wrong belief or misunderstanding about
something. Generally, mistake does not affect the validity of
the contract. According to Sec.20, where both the parties are
under a mistake, the agreement is void.
Essential Elements:
(1)Both parties can be at mistake (bilateral mistake).

• Mistake can be of two types: Mistake of fact and Mistake of
law. Mistake of fact is related to the subject matter of the
contract. It may be a bilateral or unilateral mistake. If there is
mistake of law, the contract is valid.
•Effects: 1) Acc. To Sec. 22., Contract is not voidable due to
unilateral mistake of facts. 2) Agreement made on bilateral
mistake is void. 3) Mistake as to foreign law is treated as a
mistake of fact & is excusable

Legality of Object and
Consideration
• The word object is used distinctly to mean ‘purpose or
design’ of the agreement. The word ‘consideration’ is
different from the object. Consideration means the
benefit received or suffered under an agreement. Sec.10
implies that an agreement enforceable by law must be for
a lawful consideration and with a lawful object. Every
agreement of which the object or consideration is
unlawful is void.

Legality of Object and Consideration
• Object or consideration is considered as unlawful in
following cases:
• If the act is forbidden by law. E.g. X promised Y to pay Rs.3
lakh for murder of Z. It is unlawful.
• If it is Fraudulent in nature.
• If it involves injury to the person or property of another.

Legality of Object and Consideration
• If Court considers it immoral: E.g. An agreement between
husband and wife for future separation is immoral.
• If court considers it opposed to public policy: It means no
person can lawfully do something which can cause injury to
public welfare. E.g. agreement to sell seat in medical or
engineering college, agreement for getting votes in election
for consideration, agreement to get a public title like ‘Bharat
Ratna’ for consideration.

Discharge of Contract
• Discharge of a contract means termination of contractual relation between the parties to a
contract.
• A contract is discharged when the obligation created between parties come to an end.
• There are several methods of discharging the contracts namely:
• 1) By performance of promise
• 2) By mutual agreement
• 3) By lapse of time
• 4) By operation of law
• 5) By impossibility of performance
• 6) By breach of contract

1. Discharge by Performance of
Promise
• When parties perform their promises, then the contract
comes to an end or is discharged. It can be performed in
two ways – by actual performance or by attempted
performance

2. Discharge by Mutual Agreement
Methods of discharge of an existing contract by a fresh
agreement by mutual consent are:
• 1) Novation: It means substitution of a new contract in place
of the existing contract. It may be done in two ways:- a. New
contract with new terms with same parties. b. New contract
on same terms with one party same & one new party.
• 2) Alteration: It means change in one or more terms of the
contract with the consent of all parties. A valid alteration
discharges the original contract & a contract with new terms
is created.

• 3) Rescission: It means cancellation of contract. Cancellation
may be by mutual agreement of both parties or by aggrieved
party if free consent is not given.
• 4) Remission: It means acceptance of a lesser performance in
discharge of a whole promise made.
• 5) Waiver: It means intentional withdrawal of rights. When a
party entitled to claim performance releases the other party
from his obligation to perform it, it is called waiver.

• 6) Merger: - It means merger of two or more rights into one
contract. When an existing inferior right of party merges into
newly acquired superior right by the same party, it is merger
of rights. In such case, inferior right automatically stands
discharged. E.g. A person holding a property under a lease,
buys the property in his name. His rights as a lessee are
merged into the rights of ownership.

3. Discharge by Lapse ofTime
• When time is fixed for the contract & a party does not
perform it within that time, the contract is discharged by
lapse of time

4. Discharge by Operation of Law
• The contract discharges by operation of law in the following
cases:
1) Merger: Inferior right is discharged & not required to be
enforced.
2) Insolvency: When court declares insolvent, the person is
discharged from all obligations of any contract & they are
transferred to his official receiver.
3) Death: If contract involves use of personal skills of promisor
then on his death the contract is discharged. In other cases,
the obligation is transferred to legal representatives.
4) Unauthorized material alteration in the terms of the
contract, without the knowledge & consent of other party,
the contract may be discharged by other party (voidable).

5. Discharge by Impossibility of
Performance
• Where contract is impossible to perform, the contract is void.
• According to Sec. 56, impossibility may be of two types:
1. Existing Impossibility: It refers to the impossibility at the
time of agreement.
2. Subsequent or Supervening Impossibility: The contract
becomes void when the act becomes impossible later on.

6. Discharge by Breach of
Contract
• It means non-fulfillment of the promise made by any of
the parties to a contract.There are two types of breach of
contract:
1. Actual Breach
2. Anticipatory Breach

6. Discharge by Breach of
Contract
1. Actual Breach: It takes place when a party to a contract
refuses or fails to perform his obligation when it is due.
2. Anticipatory Breach: When a party disables himself or
declares that it will not perform the contract prior to the
date of performance. It is also called anticipatory or
constructive breach of contract.

Quasi contract
• A Quasi-contract is not a contract at all because one or
the other essentials for the formation of a contract are
absent. It is an obligation imposed by law upon a person
for the benefit of another even in the absence of a
contract.
• Quasi Contract is not a full-fledged contract because
there is no offer and acceptance by the parties. But
there are some circumstances where the contractual
obligation arises.

Quasi contract
• Sec. 68 -72 deals with following kinds of quasi contractual
obligations;
i. Supply of necessaries
ii. Payment by an interested person
iii. Obligation to pay for non-gratuitous
iv. Responsibilities of finder of goods
v. Mistake or Coersion
vi. Quantum meruit >> ‘as much as erned’
vii.Compensation for failure to discharge obligation created by
quasi contracts

Contract of Indemnity (Sec. 124)

• According to Sec. 124, a contract of indemnity is ‘A
contract by which one party promises to save the other
from the loss caused to him by the conduct of the
promisor himself or by the conduct of any other person.’
• The person who promises to indemnify or make good the
loss is called indemnifier. The promisee or whose loss is
made good is called the indemnified or indemnity holder.

• Rights of indemnity- holder or indemnified He has following
rights against the indemnifier i.e. Promisor:
1. Right to recover damages: All damages he may be
supposed to pay in any suit to which the indemnity applies.
2. Recovery of cost: All costs which he may be made to pay in
defending the suit of indemnity.
3. Recovery of all sums paid: All sums he has paid in terms of
any compromise of any suit.

• Rights of Indemnifier :
1. Right of subrogation: After paying the amount of
claim, indemnifier gets all the rights of indemnified
against a third party. i.e. to sue & claim for damages &
all sums paid against third party.
2. Right to refuse claim or indemnity: If loss caused is
out of the scope of the contract or indemnified has not
acted prudently, then indemnifier can refuse claim.

Contract of Guarantee
• A contract of guarantee is a contract to perform the
promise or discharge the liability of a third person in case
of his default.
• There are three parties involved i.e. the person who gives
the guarantee known as the surety, the person in respect
of whose default the guarantee is given known as the
principal debtor and the person to whom the guarantee is
given known as the creditor

Bailment
• Indian Contracts Act 1872 • ‘Bailment’ means ‘delivery of
goods’ by one person to another for some purpose upon a
contract, that they shall, when the purpose is
accomplished be returned or disposed off as per the
directions given by the person delivering them. One who
delivers called ‘Bailor’ and to whom delivered called
‘Bailee’.

Essential Elements of a valid
bailment
Agreement between bailor and
bailee
Delivery of goods.
Ownership not change
Only movable goods.
Delivery for some purpose.
Change in forms.
Return of goods

Essential Elements of a valid bailment
• There must be an agreement between the bailor and bailee.
This agreement may be express or implied. However, a
bailment may be implied by law as it happens in the case of
finder of lost goods.
• In bailment, it is necessary that the goods should be delivered
to the bailee. It is the essence of the contract of bailment.
Delivery may be of two types: 1-Actual delivery, 2-
constructive delivery.

Essential Elements of a valid bailment
• In a bailment the ownership remains with the bailor and is
not transferred to the bailee or anyone as because if the
ownership is transferred then it is not a bailment contract. It
becomes a contract of sale.
• Bailment is only for movable goods and not for immovable
goods.
• The goods must be delivered to the bailee for some purpose.
The purpose could be the safe custody, use of the goods,
transportation of the goods, repair of the goods etc.

Essential Elements of a valid
bailment
• If the goods which are bailed are changed like a cloth is
converted into a shirt than still the contract remains a
bailment.
• The goods shall be returned to the bailor or disposed off
according to his direction .

Types of Bailment
• Bailment may broadly be classified into two categories,
namely,
1. Gratuitous bailment,
2. Non-gratuitous bailment.

Types of Bailment
1. Gratuitous Bailment
• A bailment with no considerations is called a gratuitous
bailment. In this kind of bailment neither the bailor, nor
the bailee is entitled to any remuneration or reward. Such
a bailment may be for the exclusive benefit of either
party, i.e., the bailor or the bailee, discussed as below:

Types of Bailment
Bailment for the exclusive benefit of the bailor:
• In this case the bailor delivers the goods for the exclusive
benefits and the bailee does not derive any benefit out of it.
For example, “A” leaves his pets with “B”, his neighbour to be
looked after during A’s physical absence. In this case, A alone is
being benefited by the bailment. Or, if you park your car in
your neighbour’s premises to be taken care in your absence,
you as a bailor derive the exclusive benefit from the bailment.

Types of Bailment
Bailment for the exclusive benefit of the bailee:
• This is the case where a bailor delivers the goods to the
bailee for the exclusive benefits of the bailee and does
not gain anything from the contract himself.
For example, you lend your book to a friend of yours for a
week without any charge or favour. In this case the
recipient of the book as a bailee, is the sole beneficiary of
this transaction of bailment.

Types of Bailment
2. Non-Gratuitous Bailment
• Contrary to gratuitous bailment, a non-gratuitous
bailment or bailment for reward is one that involve some
consideration passing between the bailor and the bailee.
Obviously in this case the delivery of goods takes place for the
mutual benefit of both the parties.
• For example, “A” hires “B’s” car. Here B is the bailor and
receives the hire charges and A is the bailee and enjoys the
use of the car. Similarly, when you give your PC or laptop for
repair to some techie, both you and the computer techie are
going to be benefited by this contract – while you get your
computer repaired, he gets his fees or charges.

Pledge or Pawn
• According to Sec 172, Contract Act, 1872, ‘ The bailment
of goods for repayment of a debt or performance of a
promise is called ‘pledge’. The bailor in this case is called
the pawnor, the bailee is called the pawnee.

Rights & Duties of Pawnor &
Pawee
• Duties of a Pawnor:
Duty to repay the loan.
Duty to pay expenses in case of default.
• Duties of a pawnee:
Duty not use of pledged goods.
Duty to return the goods.

Rights & Duties of Pawnor &
Pawee
• Right of Pawnor:
Right to redeem the goods pledged
Right to receive the increase
• Right of Pawnee:
Right to retain the pledged goods.
Right to extra ordinary expenses
Right in case of default of the pawnor.
 Right to sell the goods

Contract Act - Business law

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Contract Act - Business law

Similar to Contract Act - Business law (20)

Recently uploaded

Recently uploaded (20)

Contract Act - Business law